DBI_Nigeria

doing business in

Nigeria

2012 Invest now in Africa’s reform-minded and biggest market

Contents Top 10 reasons to invest in Nigeria.......... 4

Infrastructure......................................... 48

Country overview..................................... 6

ICT......................................................... 50

Federalism............................................... 8

Real Estate............................................. 54

Export Promotion Commission.............. 10

Insurance............................................... 56

Investment Promotion Council.............. 12

Consumer Behavior............................... 60

Economic Outlook............................... ..14

Beverages.............................................. 62

Starting a Business................................ 16

Media..................................................... 64

Taxation................................................. 18

Banking.................................................. 66

Energy ��������������������������������������������������� 21

Bank Profiles.......................................... 70

Power..................................................... 28

Perspective............................................ 72

Mining.................................................... 34

Hotels..................................................... 74

Agriculture.............................................. 38

Tourism.................................................. 76

Privatization of the Power Sector (PwC)...43

Country Risk.......................................... 78

Top 75 companies................................. 44

Memoir................................................... 80

Transfer Pricing (PwC)........................... 46

Practical Information.............................. 84

This publication was produced by Mediaside SARL in association with the Nigerian Ministry of Trade and Investment, and the Nigerian Export Promotion Council. The publishers thank the African Development Bank for their input.

Mediaside SARL 77 rue du Faubourg St Denis 75010 Paris Tel +33 1 4483 9337 contact@mediaside.biz www.mediaside.biz

Unless otherwise specified, all currencies are in US dollars.

Federal Ministry of Trade and Investment Block H, Old Federal Secretariat, Area 1, Abuja www.fmti.gov.ng

Publisher: Medaside SARL (Christopher Fodor and Dany Laloum) Editor-in-chief: Christopher Fodor Editorial coordinator: Robert Goldsmith Art director: Rohit Juneja Editorial contributors: Clara Nwachukwu, Elisha Bala-Gbogbo Photographer: George Osodi Advertising sales: Leo Brenner, Chris Fodor, Dany Laloum

Nigerian Investment Promotion Commission Plot 1181, Aguiyi Ironsi Street, Maitama District, P.M.B. 381, Garki Abuja Tel: +234-(0)9-290488-2 www.nipc.gov.ng Nigerian Export Promotion Council No.40 Blantyre Street, Wuse II, Abuja info@nepc.gov.ng, Tel: +234-(0)9-4604201-2 www.nepc.gov.ng

Copyright 2012 Mediaside SARL All efforts have been made to insure accuracy of information provided. The publishers are not held responsible for mistakes. The opinions expressed in the articles, including the sponsored statements, are those of the authors and interviewees and do not necessarily represent the opinion of the Nigerian government or the African Development Bank. Monetary amounts provided in Nigerian Naira and converted to US dollars at a rate of approximately N160 to $1 (March 2012).

Top 10 reasons to invest in Nigeria

1

Abundant resources Nigeria has enormous resources, most of which are yet to be fully exploited. Tremendous investment opportunity exists in the solid minerals sector. Mineral resources include coal, tin, iron ore and others. Agricultural products include, among others, groundnuts, palm oil, cocoa and coconut. Nigeria also has a booming leather and textile industry and is one of the largest oil producers on the continent creating huge inflows of foreign investment.

2 3

Political stability In spite of periodic crises, Nigeria offers a stable political environment. In April 2011, the Independent National Electoral Commission organized legislative, gubernatorial, and presidential elections. While imperfect, the elections were considered Nigeria’s most successful since its return to multiparty democracy in 1999, and reversed a downward trajectory of successively flawed election processes. The international business community increasingly sees Nigeria as the central driver of a vast African market.

4 5 4

Large consumer market With a population of more than 155 million, Nigeria is the most populous country in Africa (one in every six Africans a Nigerian) and is the eighth most populous country in the world. The structure of its population with 75% of the populace under age 30 and an excellent regional distribution of eight “anchor” cities each with populations exceeding 1 million suggests a healthy growth picture going forward.

Free market economy The Nigerian government has created a favorable climate for business and industrial ventures. Administrative and bureaucratic procedures have been greatly streamlined.

The government has put in place policies and programs that guarantee a free market economy. In recent years, it privatized the only government-owned petrochemical company and sold its interest in eight oil service companies. It overturned a number of suspect contracts awarded by previous governments.

Attractive incentives The Nigerian government has put in place a comprehensive package of investment incentives to stimulate private sector investment from within and outside the country.

Among them are the Companies Income Tax Act which has been amended to encourage potential and existing investors and entrepreneurs; Pioneer status gives industries a fiveyear tax holiday; and tax relief is provided for research and development.

Doing Business in Nigeria | 2012 Edition

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Fast-growing economy Nigeria’s gross domestic product remains strong and steady, growing at a rate of 6.9% in 2011 compared to 8.1% in 2010. It is projected to grow 6.7% in 2012. A series of recent policy initiatives to transform its agricultural sector is expected to put Nigeria’s growth into double-digit territory in the 2012–2015 timeframe. This would put its growth rate ahead of two other emerging markets, Brazil and Russia, and slightly behind India and China.

7 8

Strong banking and financial sector In 2009, Nigeria took significant steps to strengthen the banking sector. These reforms came on top of a major banking overhaul in 2006 that reduced the number of banks and increased a bank’s minimal capital requirement. Retail, corporate and internet banking are seen as intensively competitive, and the home loan market is considered moderately competitive. Since 1999, the Nigerian Stock Exchange has enjoyed strong performance.

Improving infrastructure Nigeria is rapidly developing its physical and industrial infrastructure, in terms of transportation, communications, electricity and water supply. Extensive road repairs and new construction activities are gradually being implemented as state governments, in particular, spend their portions of enhanced government revenue allocations. Four of Nigeria’s airports–Lagos, Kano, Port Harcourt and Abuja–currently receive international flights and there are several domestic private Nigerian carriers.

9 10

Lucrative telecommunications market Nigeria is also home to the most lucrative telecoms market in Africa, which is growing at twice the African average. The explosion of industries such as the mobile telecommunications market and the unparalleled success of foreign companies such as South Africa’s MTN have demonstrated that potential can be turned into reality.

Future economic power In 2011, analysts at Citigroup listed Nigeria as one of 11 Global Growth Generators, economies which have been identified as sources of growth potential and of profitable investment opportunities. In 2005, Goldman Sachs identified Nigeria as one of its N11 countries, states with a high potential of becoming, along with the BRICS, the world’s largest economies in the 21st century.

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Nigeria: Strong fundamentals N

igeria is a federal constitutional republic with 36 states which are sub-divided into 774 Local Government Areas (LGAs), and the Federal Capital Territory, Abuja. With a population of more than 155 million, Nigeria is the most populous country in Africa and the eighth most populous country in the world.

Food and oil Percentage of GDP by sector of the economy (2010) Business Hotels and and other restaurants services 1% Solid Mineral <1%

Nigeria has six cities with a population of more than one million people, including Lagos, Kano, Ibadan, Kaduna, Port Harcourt, and Benin City. Lagos is the largest city in Sub-Saharan Africa, with a population of more than 17 million.

<1% Real estate 2% Finance and insurance 4%

The three largest ethnic groups in Nigeria are the Hausa, Igbo and Yoruba. The country is about half Muslim and half Christian. The name Nigeria comes from the Niger River which runs through the country.

Telecommunication and post 5%

Nigeria is a Federal Republic modeled after the United States with executive power exercised by the president.

In April 2011 Goodluck Jonathan was elected president for a four-year term. The next election will be held in April 2015.

Nigeria is classified as a mixed economy emerging market, according to the World Bank. It has an abundant supply of natural resources, as well as well-developed financial, legal, communications and transport sectors. The Nigerian Stock Exchange is the second largest in Africa.

Petroleum plays a large role in the Nigerian economy, accounting for about 16% of GDP and 80% of government earnings. Nigeria joined OPEC in 1971. The organization ranks Nigeria its second biggest crude oil BURKINA FASO exporter by volume and seventh among its 12 member nations in terms of proven crude oil reserves. In 2010, Nigeria exported 2.5 million barrels per day of crude oil, earning $71 billion from oil exports. Nigeria’s oil exports had been disrupted by years of violent campaign by militants in the main oil producing Niger Delta region.

TOGO

In 2011, analysts at Citigroup listed Nigeria as one of 11 Global Growth Generators, economies which have been identified as sources of growth potential and of profitable investment opportunities. In 2005, Goldman Sachs identified Nigeria as one of its N11 countries, states with a high potential of becoming, along with the BRICS, the world’s largest economies in the 21st century. ● 6

Doing Business in Nigeria | 2012 Edition

Other economic activities 7%

Agriculture, forestry, fishing & hunting 41%

Wholesale and retail trade 19%

Oil 16% Construction 2% Manufacturing 4% GDP $384 billion (2010) Source: Nigerian National Bureau of Statistics and African Economic Outlook

NIGER Sokoto

CHAD

Katsina

Jigawa

Zamfara

Kebbi

Yobe Borno

Kano

BENIN

Bauchi

Kaduna

Gombe

Niger

Kwara

Osun Ogun Lagos

Taraba

Nassarawa

Oyo Kogi

Ekiti

Ondo Edo

Adamawa

Plateau

Abuja

Benue

CAMEROON

Enugu Cross Ebony Rivers

Anambra

Delta Bayelsa

Imo Abai Rivers

Akwa Ibom

75

0 0

75

150 ml 150 km

CENTRA AFRICAN REPUBLIC

Country Overview

Sub-Saharan Africa comparative economies Morocco Algeria

Libya

Egypt

Sudan

Niger Benin Ghana

Chad

NIGERIA

Sudan Population*: 43 GDP*: 93 GDP per capita*: 2,147 Avg. GDP growth*: 6.9% FDI*: 3

Kenya Population*: 41 GDP*: 71 GDP per capita*: 1,745 Avg. GDP growth*: 4.1% Ethiopia FDI*: 0.2

Cameroon Ghana Population*: 24 GDP*: 37 GDP per capita*: 1,526 Avg. GDP growth*: 5.9% FDI*: 2.5

Nigeria Population*: 158 GDP*: 384 GDP per capita*: 2,427 Avg. GDP growth*: 9.1% FDI*: 6 Angola Population*: 19 GDP*: 116 GDP per capita*: 6,097 Avg. GDP growth*: 12.3% FDI*: -3 South Africa Population*: 50 GDP*: 522 GDP per capita*: 10,334 Avg. GDP growth*: 3.6% FDI*: 2

Sources: World Bank, African Economic Outlook

Kenya D.R. Congo Tanzania

Angola

Tanzania Population*: 45 GDP*: 64 GDP per capita*: 1,411 Avg. GDP growth*: 7% FDI*: 0.4

Zambia DR Congo Population*: 68 GDP*: 28 GDP per capita*: 414 Avg. GDP growth*: 5.6% FDI*: 3

South Africa

Zambia Population*: 13 GDP*: 23 GDP per capita*: 1,703 Avg. GDP growth*: 5.6% FDI*: 1 * Population in millions * GDP 2010 $ Billions * GDP per capita 2010 in $ * Average GDP growth 2002-10 * FDI net inflows 2010 $ Billions

2012 Edition |â&#x20AC;&#x201A; Doing Business in Nigeria

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Nigerian federation Nigeria is a patchwork of 36 states plus Abuja (federal capital territory).

Hereâ&#x20AC;&#x2122;s a quick glimpse of some of the states.

Kaduna State

NIGER

Sokoto

Governor:

Patrick Ibrahim Yakowa

Area:

46,053 km2

GDP:

$10.3 billion

Katsina

Population: 6 million BURKINA FASO

Zamfara

Kebbi

Main economic activities: Agriculture, mining, manufacturing, industry, petroleum refining, tourism.

Main companies: fertilizers, flour, packaging, automobiles, wire, refrigeration, manufacturing, furniture and carpets, meters, leather

Kaduna

BENIN Niger

Ogun State Governor:

Ibikunle Amosun

Area:

16,762 km2

Population:

3.7 million

GDP:

$10.5 billion

Main economic activities: Agriculture, mining, timber, rubber, livestock

TOGO

Main companies: Cement, pharmaceuticals, paint, ceramics, roofing sheets, plastic, agro allied, foods and beverages, foam, breweries, distilleries, soaps and detergents

Nige r

Abuja

Kwara

Nassarawa

Oyo Osun Ogun Lagos

Benue

Kogi

Ekiti

Ondo Enugu

Edo

Ebony Anambra

Lagos State Governor:

Babatunde Fashola

Area:

3,475 km2

Population:

17.6 million

GDP:

$33.7 billion

Main economic activities: Trade, financial services, transportation, light industry Main companies: Banks, NNPC, Nigerian Breweries, real estate 8

Doing Business in Nigeria | 2012 Edition

Delta

Bayelsa

Imo

Rivers

Abai Akwa Ibom

Federalism

Kano State

75

0

Governor:

Dr Rabiâ&#x20AC;&#x2122;u Musa Kwankwaso

Area:

20,130 km2

Population:

9.4 million

GDP:

$12.4 billion

0

75

150 ml 150 km

CHAD

Main economic activities: Agriculture (groundnuts), leather goods, extractive industries, commerce.

Bauchi State Jigawa

Yobe Borno

Kano

Governor:

Isa Yuguda

Area:

49,120 km2

Population:

4.7 million

GDP:

$4.7 billion

Main economic activities: Agriculture, livestock

Bauchi

Gombe

Adamawa Plateau Taraba

Cross River Governor:

Liyel Imoke

Area:

23,074 km2

Population:

3.1 million

GDP:

$9.3 billion

Main economic activities: Agriculture, tourism, mining (gold, barite, limestone) Main companies: Dangote, Unicem, Addax, oil refineries

Benue

CAMEROON Cross Rivers

Bayelsa State Governor:

Henry Dickson

Area:

21,100 km2

Population:

2.0 million

GDP:

$4.3 billion

CENTRAL AFRICAN REPUBLIC

Main economic activities: Oil and gas, fishing, agro-processing, extractive (sand, clay, gravel) Main companies: NNPC, Shell, AGIP, ChevronTexaco 2012 Edition |â&#x20AC;&#x201A; Doing Business in Nigeria

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Seeking a balance Petroleum exports are the main factor behind Nigeria’s growth and accounted for 88% of total exports in 2010. Nigeria has an enormous amount of non-oil resources, but most of these are yet to be fully tapped.

T

he value of Nigeria’s total exports (oil and nonoil) increased from slightly more than $24 billion in 2003 to almost $87 billion in 2010, according to the International Trade Centre. Petroleum exports amounted to nearly $24 billion in 2003 compared to almost $76 billion in 2010, according to the Centre.

The Nigeria Export Promotion Council (NEPC) reports that cocoa and related products dominate the country’s non-oil exports, and the volume of cocoa exports is rising year on year. In 2010, cocoa exports amounted to $823 million compared to $215 million in 2006. Between January and June 2011, cocoa exports amounted to $533 million and cocoa is expected to be the top non-oil export in 2011 as well.

Another top Nigerian export is animal skins and leather goods of which 2009 exports totaled $290 million.

Also topping the non-oil export list are sesame seeds

Export rankings

Nigeria is focusing on exporting more non-oil resources.

and oil which totaled $189 million in 2010, according to the NEPC. Other non-oil export values for 2010 include rubber ($150 million), plastics ($84 million), cotton, yams and fabrics ($79 million), aluminium and related articles ($72 million), cashew nuts and fruits ($63 million), and gum arabic ($40 million). Prawns, fish and crustacean exports came to $49 million in 2010, the NEPC reports.

Oil is tops in Nigeria but the country also has abundant non-oil resources most of which are yet to be developed.

Nigeria’s main exports partners are the US (30% of the 2009 total), Equatorial Guinea (8%), Brazil (6.6%), France (6%) and India (6%).

Nigeria ranks 149 out of 183 economies on the ease of trading across borders.

Ivory Coast

Products that are prohibited from export include maize, timber (rough or sawn), scrap metals, unprocessed rubber latex and rubber lumps, artifacts and antiquities, and wildlife animals classified as endangered species and their products, such as crocodiles, elephants, lizards, eagles, monkeys, zebras and lions.

Cameroon Nigeria Kenya Sub-Saharan Africa Benin Ghana Senegal 0

20

40

60

80

100

120

140

160

180

Source: World Bank

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Doing Business in Nigeria | 2012 Edition

According to the World Bank Doing Business database, Nigeria is easing the procedures required for exporters. The number of documents needed to export has been reduced from 11 in 2006 to 10 in

Export Promotion Commission

Insight

Promoting non-oil exports The Nigerian Export Promotion Council (NEPC) was created by the Nigerian government to make the non-oil export sector a significant contributor to Nigeria’s GDP. The NEPC’s mission is to facilitate market opportunities for exporters and promote sustainable economic development.

NEPC provides export information to all stakeholders in the business of Nigeria’s non-oil exports, be they Nigerian government agencies, Nigerian exporters, producers, importers of Nigerian products and research and development organizations worldwide. The agency has 13 offices nationwide to cover Nigeria’s six geopolitical zones.

The NEPC’s core functions are to: • Promote the development and diversification of Nigeria’s non-oil export trade

Crude heavy Nigeria’s top 10 exports 2010

• Assist in promoting the development of export-related industries in Nigeria • Spearhead the creation and implementation of appropriate export incentives • Articulate and promote the implementation of the Nigerian government’s export policies and programs

Petroleum 88% Others 6% Cocoa and cocoa preparations 2%

Since its inception, the NEPC has made significant strides into the world market to claim a continuously growing portion of market share in several sectors, ranging from manufacturing, semi-processed, commodities, handicraft, horticulture, garments and textiles, aquaculture and sea products, wood and wood products, leather and leather products, solid minerals, services, and other non-oil products.

Furthermore, NEPC has put in place strong structures for human capital development, capacity building and incentive schemes.

Raw hides, skins and leather 4% Nigerian exports amounted to $87 billion in 2010

Source: International Trade Centre

2012. This compares to the Sub-Saharan regional average of eight procedures.

Nigeria has also reduced the number of days needed to export, from 41 to 24 during the 2006-2012 period, according to the World Bank. This is eight days fewer than the regional average of 32 days and is due largely to upgrades to the facilities at Apapa port in Lagos in 2009.

Meanwhile, the cost to export a container of goods has increased, going from $798 in 2006 to $1,263 in 2012, according to the World Bank. Nevertheless this

is considerably less costly than the regional average of $1,960 per container.

There are 24 free trade zones in Nigeria but only 15 are currently operational. The first free trade zone, established in Calabar in 1993, has over 70 companies trading through it. China and Nigeria are forming a 16,500 hectare free trade zone near Lagos, which is expected to be a boon for potential investors. ● For more information Nigerian Export-Import Bank: www.neximbank.com.ng Nigerian Export Promotion Council: www.nepc.gov.ng Nigerian Export Promotion Organization: www.nigeriaexport.com

2012 Edition | Doing Business in Nigeria

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Nigeria’s new dawn Nigeria already receives the largest amount of foreign direct investment (FDI) in Africa but a series of reforms is making the country even more attractive to outside investment.

F

oreign direct investment inflows to Nigeria have grown from $1.14 billion in 2001 to $8.6 billion in 2009, according to the World Bank. Although FDI declined to $6 billion in 2010 due to the global economic crisis, the country is still the largest recipient of FDI in Africa and the nineteenth largest recipient in the world.

The US and the UK are the most important sources of FDI largely through major oil companies. The US invested $3.4 billion in Nigeria in 2008 and the UK accounted for about 20% of Nigeria’s total foreign investment that year. Nigeria is China’s second largest trading partner in Africa after South Africa. The oil and gas sector receives 75% of China’s FDI in Nigeria.

Nigeria’s potential is attracting foreign investors.

Four times better than South Africa Comparison of FDI inflows in Africa ($M) Country

2007

2008

2009

2010

Nigeria

6,035

8,197

8,555

6,049

South Africa

5,737

9,645

5,354

1,565

Zambia

1,324

939

695

1,041

427

446

381

418

Ivory Coast Kenya

729

96

116

186

Ghana

269

209

33

170

Source: World Bank

Beyond oil, other sectors that received large FDI inflows include the telecoms sector thanks to liberalization that has made Nigeria Africa’s largest mobile market. The brewing industry is another top recipient of foreign investment.

digits by 2015 if Nigeria successfully transforms its agricultural sector through a series of recent policy initiatives. This would put the country’s growth rate ahead of Brazil and Russia and slightly behind India and China.

Nigeria has also gained popularity as a tourist and business destination and consequently, major international hotel chains have increased their investments or are planning to invest for the first time.

Per capita income also has continued to rise in the past decade, driven by strong growth in new sectors such as wireless telecommunications, construction and a revival of manufacturing, helping drive a growth in per capita income from $520 in 2003 to $712 in 2011.

“Improvements in banking, telecommunications, airport arrivals and the removal of banned products such as furniture are benefiting the hotel industry,” says Andrew McLachlan, Vice President of Business Development for Africa and the Indian Ocean Islands for South Africa’s Rezidor Hotel Group, which is developing six hotels in Nigeria. In 2013, the group will open its first Park Inn by Radisson in Apapa.

In addition, Nigeria has the largest consumer market in Africa. Nigeria’s population dwarfs that of South Africa and Egypt and the structure of its population – with 72% under age 30 and eight cities of populations exceeding 1 million – promises a healthy growth picture ahead with a significant base for future investment and consumption activity.

Why Nigeria?

Nigeria’s GDP is growing fast – 7% in 2010 and 7.3% in 2011. And experts say growth will go into double

In 2009, the extension of an amnesty in the Niger Delta saw some 8,000 militants lay down their arms.

A ceasefire has held since and President Goodluck

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Doing Business in Nigeria | 2012 Edition

Investment Promotion Council

Editorial

Attracting investment The Nigerian Investment Promotion Commission (NIPC) is a federal government agency that promotes, encourages and co-ordinates all investments in Nigeria. Since 1995, 100% foreign ownership Mustafa Bello Executive Secretary/CEO is allowed in all industries except Nigerian Investment for oil and gas, where investment Promotion Commission is constrained to existing joint ventures or new production-sharing agreements.

Jonathan has made reinvigorating the amnesty program one of his chief priorities.

Corruption has been another worry for investors.

But the Economic and Financial Crimes Commission (EFCC) and Independent Corrupt Practices and Other Related Offences Commission (ICPC) have tried and convicted many public figures, and the government has reiterated its commitment to fighting corruption.

Beyond oil and gas Moreover, the government is working on reforms and infrastructure improvement to enable the economy to diversify beyond petroleum. Both the ruling and opposition parties have pledged backing for the reforms and infrastructure programs in an effort to make Nigeria one of the globe’s 20 largest economies by 2020. President Goodluck Jonathan’s commitment to the reforms is seen as particularly crucial.

“We believe that now is a very good time to invest in Nigeria across a number of sectors,” says Michael Lalor, a Director at Ernst & Young South Africa. “President Jonathan has an opportunity to continue driving reform and entrenching practices of good governance. This, combined with growing oil production, relative stability in the Niger Delta and high oil prices, is all positive for investment in key sectors.”

Great changes are expected in the infrastructure development landscape when projects begin to rollout, thereby creating lucrative spin-off opportunities for well-positioned companies.

“Besides oil and gas, power, and other key infrastructure projects, we see several other sectors, notably, telecommunications and construction,

The government’s investment regime is geared towards encouraging private sector involvement in the country’s economy. The corporate tax rate is 30% in all sectors except petroleum, which is taxed separately. Annual capital allowances available include 10% on buildings, 25% on plants and 20% on furniture and fittings. Added to this, companies get special allowances in their first year, including 50% on plants and 15% on buildings and automotives.

Nigeria has bilateral investment promotion and protection agreements (IPPAs) with trade partners that ensure the safety of companies’ investments in the event of war, revolution, expropriation or nationalization. This also assures investors on the transfer of interests, dividends, profits and other incomes and guarantees compensation in the case of dispossession or loss.

Nigeria also cooperates with other countries on preventing double taxation. Under Nigeria’s tax treaties, companies subject to tax in other countries are eligible for a tax credit, so that tax payable in Nigeria on profits being remitted into the country is reduced by the amount of foreign tax paid abroad, and conversely, profits being sent over- seas that have already been taxed in Nigeria are subject to reduced taxation in their destination country. continuing to grow strongly,” says Lalor. “Growth should also pick up in financial services and consumer products.”

Investment managers, such as South Africa’s Stanlib, say while there are many long-term investment opportunities in infrastructure development and petroleum, they favor companies and banks that have exposure in the non-oil economy. ● For more information: Nigerian Investment Promotion Commission: www.nipc.gov.ng

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High potential Nigeria has taken steps to tap into its enormous economic potential, but challenges remain.

T

he Nigerian government’s current economic policies are focused on addressing key infrastructural shortcomings as a crucial element in setting the stage for longer-term stable growth in an effort to break the past 30 years of uncontrolled boomand-bust cycles. In recent years, the performance of the economy has responded positively to efficiency gains from economic reforms and, with the benefit of high oil prices, has generated strong growth.

Economic growth at 7% in 2009 and at an even stronger estimated 8.1% in 2010 in the aftermath of the global economic crisis underscored the resilience of the economy and reflected the prudence of economic policies.

In 2009, the government eased the credit crunch by lowering interest rates. In addition, the government recapitalized struggling banks. These policies maintained the confidence of lenders and borrowers in the financial market and stimulated the economy.

With the unfolding global economic recovery supporting high oil prices, Nigeria can expect to maintain strong growth in 2011 and 2012. Improved access to credit from the reformed banking sector and enhanced provision of domestic energy supplies are also expected to support continued improved performance of the non-oil sector. Real GDP growth is thus projected to remain robust at 6.9% in 2011 and at 6.7% in 2012.

The strong growth in output recorded in 2010 was supported by the expansion in oil production following relative peace in the Niger Delta region, but the key driver of growth remained the non-oil sector. Nonoil growth averaged 8.3% in 2010 and accounted for 84.8% of total GDP. The main growth drivers in the non-oil sector were telecommunications, general commerce, manufacturing, agriculture and services.

The communications sector in Nigeria has boomed in the past five years, with growth averaging around 30% per annum, driven largely by the expansion of the Global System for Mobile (GSM). Large inflows of foreign direct investment (FDI) have played a crucial role. The stock of FDI in telecommunications increased more than 200%, from $7.5 billion in 2005 to more than $18 billion in 2010. The number of mobile-phone 14

Doing Business in Nigeria | 2012 Edition

Nigeria’s economy is growing despite ongoing challenges.

GDP forecast Nigeria’s GDP is expected to remain strong and steady through 2012 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2008 (p) prediction

2009

2010

2011(p)

2012(p)

Sources: National Bureau of Statistics, World Bank

lines has increased from fewer than 19 million in 2005 to nearly 80 million in 2010, with teledensity reaching 54.2 lines per 100 inhabitants. The tremendous progress made in telecommunications has contributed to an overall improvement in the business climate, benefiting in particular the manufacturing sector, which, in 2010, grew by more than 6% even with shortage of electricity and paucity of credit limiting the potential of the sub-sector.

Nigeria’s agricultural sector has also performed remarkably well, with an estimated growth rate in 2010 exceeding 6.0%, reflecting the good weather conditions that boosted crop production. The government’s effort to address protracted issues of inadequate credit and high interest rates in agricultural lending through the Commercial Agricultural Credit Scheme (CACS) has also benefited agricultural expansion: in 2009/10 the government made 200 billion Nigerian naira ($1.2 billion) available at low interest rates to farmers and other practitioners in the agricultural sector.

Economic Outlook

Analysis

Optimistic outlook Many observers are optimistic about Nigeria’s future despite the challenges it is confronting. In October 2011, Fitch Ratings lifted its outlook on Nigeria from negative to stable citing an improved outlook for the reforms following the elections in April that brought Goodluck Jonathan to the presidency. Similarly, analysts at FBN Capital, a subsidiary of FirstBank Nigeria, the country’s largest financial institution, predicted in January that if the government pursues its reform agenda, GDP will grow at 8.1% in 2012. They also predicted the non-oil sector will be the major driver of the economy due to robust private consumption and the recovery in oil production.

In the oil sector, the previous five years had been characterized by declining output, due largely to militant activities and the accompanying disruption of oil-producing activities. Before militants began attacks and destruction of oil facilities in 2005, Nigeria had been producing about 2.5 million barrels per day (bpd). By 2008, output had been reduced by about 40% to 1.5 million barrels per day. Production appeared to stop declining in 2009, however, following the federal government’s amnesty program, which brought relative peace to the Niger Delta area. By the end of 2009, petroleum production had increased to more than 2 million bpd, an output level that

Ranking Africa Global competitiveness of selected Sub-Saharan nations Rank 2010-2011 (out of 139 countries)

Rank 2009-2010 (out of 133 countries)

Ethiopia Madagascar Malawi Nigeria Lesotho Côte d’Ivoire Mozambique Mali Burkina Faso Mauritania Burundi Chad 0

20

40

*Lower values are more competitive

60

80

100

120

140

Source: World Economic Forum

was maintained in 2010. Oil GDP, comprising crude petroleum and natural gas, grew by 3.9% in 2010. At the same time, oil production remained the dominant activity for export and government revenues.

According to government records, in 2010 oil and gas accounted for about 96% of total export receipts and nearly 66% of total government revenues.

In line with the high infusion of funds into the telecom and oil industries, total investment in the economy has remained high. In 2010, a 4.5% increase in the volume of investment represented about 1.7% of real GDP growth. The contribution of investment to GDP growth is expected to increase to about 2.5% in 2011, but to fall slightly to 2.3% in 2012 as investor confidence in the economy wanes in the wake of the political process. Indeed, Nigeria’s prospects of enhancing investment contribution to growth will be better served if official policy, which establishes a series of incentives to attract foreign capital, is reconciled with what appears to be popular opposition to the presence of foreign investors in certain sectors of the economy. In 2009, for example, the overturn of several licenses and contracts by the government, which it alleged had been improperly awarded by the previous government, dented the country’s image among international investors. ● This article originally appeared in AfricanEconomicOutlook.org, an online publication that combines the expertise of the African Development Bank, the OECD Development Center, the UN Economic Commission for Africa, the UN Development Program and a network of African think tanks and research centers.

2012 Edition | Doing Business in Nigeria

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Complex but worth it Setting up a business in Nigeria can be complicated. But the prospect of good returns on investment can make it worthwhile.

C

ompared to many countries setting up a new business in Nigeria is a challenge. Globally, Nigeria stands at 116 in the ranking of 183 economies on the ease of starting a business, according to the World Bank Doing Business 2012 report. Currently it takes 36 days to create a company. On the other hand, the report shows it is easier to start a business in Nigeria than in many comparable Sub-Saharan countries and it is getting easier.

“Because of the complexity, we recommend using an experienced local partner and researching the market first,” says Abolade Kehinde, a PwC Senior Manager in Lagos. “The internet can be used but many Nigerian websites are of a low standard and not regularly updated. The best sources of background information is Nigerian newspapers, most of which have their own websites.”

Nigeria also has bilateral chambers of commerce in many countries which can provide advice to potential investors or business people and suggest

It’s getting easier to start a business in Nigeria.

valuable contacts with people who have successfully conducted business in Nigeria.

There is no restriction on foreign nationals or foreign entities doing business in Nigeria provided that such business is conducted using a Nigerian company.

It is possible to appoint a local attorney or other organization to act as their agent.

Incorporation Everyone, including foreign companies, proposing to do business in Nigeria is required to register a company with the Corporate Affairs Commission (CAC) which is the government agency charged with registering companies, business names and incorporated trustees.

The CAC’s head office is in Abuja but it also has branch offices in some other states of the federation.

Types of companies Company type

Private Limited Liability Company (LTD)

Public Limited Liability Company (PLC)

Companies Limited by Guarantee (LTD/GTE)

Minimum capital

NGN10,000 (about $63). Note however, foreign owned companies minimum share capital requirement is NGN10 million (about $62,500)

NGN500,000 (about $3,125)

Not Applicable. However, the liability of members shall not be less than NGN10,000 at any time

Shareholding

Minimum of 2 shareholders, maximum of 50. At least 25% of the share capital must be taken up by the subscribers to the memorandum

Not less than 2 subscribers to the Minimimum of 2. No limit on the memorandum number of shareholders. At least 25% of the share capital must be taken up by the subscribers to the memorandum

Directors

Not less than 2 directors

Not less than 2 directors

Not less than 2 directors

Company Secretary

Must appoint a company secretary

Must appoint a company secretary

Must appoint a company secretary

Conditions

The company must have a registered address within jurisdiction (Nigeria) and a common seal.

The company must have a registered address within jurisdiction (Nigeria)and a common seal

The company must have a registered address within jurisdiction (Nigeria)and a common seal Source: PwC

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Doing Business in Nigeria | 2012 Edition

Starting a Business

Insight

Tax compliance

George Osodi

Following incorporation in Nigeria, companies are required to comply with the country’s various tax laws.

Getting easier The ease of starting a business in Nigeria over time 100

89.6

80

70.6

60 40 20 0

44 34 10 2004

8 2005

2006

Procedures (number)

2007

2008

Time (days)

2009

2010

2011

2012

Cost (% of income per capita) Source: World Bank

Once relevant documents have been submitted and fees paid, the company is registered and issued with a certificate of incorporation.

CAC’s website provides additional information including information on the requisite forms and filing fees. In addition, the website provides an online search service for checking company names and completing other procedures. This can be done by purchasing an e-payment card from a bank. However, this system is strictly regulated and only accredited persons have access to the search facilities.

In addition to the general incorporation requirement at the CAC, foreign investors are required to obtain a Certificate of Business Registration from the Nigerian Investment Promotion Commission (NIPC). The NIPC has a One Stop Investment Centre, through which foreign investors can incorporate their business and also obtain the Certificate of Business Registration and relevant approvals. The new company is then required to apply to the Ministry of Interior (MOI) for a business permit.

Companies must register with the Federal Inland Revenue Service (FIRS) for the annual filing of tax returns. There is no specific time frame for registration but in practice a company would normally seek registration immediately after incorporation. Upon registration, the company is issued a Tax Identification Number (TIN) to use when filing its annual tax returns.

Taxable persons engaged in the supply of goods and services are required to register and charge VAT on all such supplies. A taxable person is required to register with the FIRS as soon as it commences business. If the company is to employ local or foreign staff based in Nigeria, it must register with each relevant State Internal Revenue Service in which its employees are resident for the remittance of personal income tax under the Pay-As-You-Earn (PAYE) system.

The company must also contend with various other employment-related registrations and obligations. All employers are required to register with the National Housing Fund and deduct and remit a monthly contribution of 2.5% of employees’ basic salary in to the fund. Every company with five or more employees must register under the Pension Reform Act and make mandatory contributions to a Retirement Savings Account (RSA) in favor of their employees.

Foreign companies may also set up incorporated representative offices in Nigeria in certain circumstances. Representative offices must be registered with the CAC and can only serve as a promotional or liaison office.

Repatriation of funds Foreigners may invest in a Nigerian company with foreign exchange brought into Nigeria through an authorized dealer (a Nigerian licensed bank) but in order to avoid foreign exchange restrictions on the repatriation of funds, the investor must obtain a “Certificate of Capital Importation” (CCI), which can be obtained from the relevant bank within 24 hours of such investment. ● For more information: Corporate Affairs Commission: www.cacnigeria.org Nigerian Investment Promotion Commission: www.nipc.gov.ng Ministry of Interior (MOI): www.fmi-ng.org

2012 Edition | Doing Business in Nigeria

17

The role of taxation Government should not be fixated on introducing new taxes and increasing tax rates on the already over-burdened businesses and taxpayers rather than helping them grow and thereby increasing the tax base and tax revenue.

T

Taiwo Oyedele Partner Tax and Corporate Advisory Services Unit PwC Nigeria

he World Economic Forum in its 2011-2012 global competitiveness report ranked Nigeria 127 out of 142 countries surveyed worldwide. With this ranking Nigeria is only ahead of 15 countries in the world covered by the survey.

To put this in proper perspective, Nigeria trails behind a number of countries in Africa including Ghana, Kenya, Algeria, Egypt, Morocco, Rwanda, Mauritius, South Africa and Tunisia. With respect to comparable countries with similar growth prospects such as the Next Eleven (N-11) economies identified by Goldman Sachs, Nigeria did not perform any better. Out of the N-11 countries, Nigeria has a lower ranking than Pakistan, Bangladesh, Egypt, Philippines, Vietnam, Iran, Turkey, Mexico, Indonesia and South Korea.

Ease of paying taxes Ranking of Nigeria out of 183 economies surveyed (2012) Indicator

Rank

Ease of paying taxes

138

Number of payments

35

Time to comply (hours per year)

938

Total Tax Rate*

32.7% *Total Tax Rate as a percentage of commercial profits.

Sources: World Bank, PwC

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Doing Business in Nigeria | 2012 Edition

Tax plays an important role in making Nigeria competitive.

In the Paying Taxes 2012 study conducted by PwC, the World Bank and IFC (International Finance Corporation), Nigeria ranks 138 overall out of 183 economies on the ease of paying taxes. The study covers a range of aspects of tax administration. On these Nigeria ranks 123 on number of tax payments, 180 on time required to comply and 56 on total tax rate.

Bad indicators Clearly the worst sub-indicator for Nigeria is the number of hours required to comply with tax obligations. Going by this indicator, Nigeria ranks lowest in Africa and only ahead of three countries in the world: Vietnam, Bolivia and Brazil. The enormous time required for tax compliance in Nigeria is a reflection of the bureaucracy, complexities and cumbersome manual tax administration system in the country.

As a result, Nigeria continues to slip back on the ease of paying taxes index because of slow and uncoordinated approach to tax reform while most countries have improved their tax systems aggressively to become more competitive.

Role of taxation Tax has a significant role to play in making Nigeria competitive but the solution is not to simply throw tax incentives at investors. The most important incentive is to develop an efficient tax administration system and robust tax legislation. Investors are looking for certainty of tax treatment which is consistently applied and stable to enable long-term planning.

Taxation

Insight

Investment incentives The Nigerian tax system has undergone significant recent changes to reduce obsolete provisions and simplify main ones. Investment incentives also have been introduced to stimulate private sector investment from within and outside the country.

George Osodi

The Companies Income Tax Act, for example, has been amended to encourage potential and existing investors and entrepreneurs. The current rate in all sectors, except petroleum, is 30%.

Nigeria’s tax system Tax type

Tax rate

Payments Time to comply (number/year) (hours)

Corporate income

30%

1

398

Social security contributions

7.5%

12

378

Education

2%

1

0

Training

1%

1

0

Capital gains

10%

1

0

Value added tax (VAT)

5%

12

162 Source: World Bank

With large budget deficits in the economy in recent years and volatility in oil prices there is a clear expectation that governments at various levels in Nigeria need to generate more tax revenue. But the solution is not to increase tax rates or introduce new taxes.

This includes the sales tax in Lagos, the hotel consumption tax in Lagos and Edo states, the Social Services Levy in Rivers State, and at the federal level the recent Local Content Development Levy and Employee Compensation Contribution, to mention a few.

A five-year tax holiday is now given to industries so they can make a reasonable profit within their formative years.

Industries in economically disadvantaged local government areas enjoy a seven-year tax holiday and an additional 5% capital depreciation allowance over and above the initial capital depreciation allowance.

Industries can also deduct up to 120% of research and development expenses provided that these activities are carried out in Nigeria and are connected with the business from which income or profits is derived.

Industries that have in-plant training facilities enjoy a 2% tax concession for a period of five years, while industries that provide infrastructure – such as roads, water and electricity – that ordinarily should have been provided by the government can deduct 20% of the cost of providing those facilities.

Tax concessions are also given to industries with high laborto-capital ratios. Industries that use some finished imported products as inputs also get a tax concession to encourage local fabrication. Other incentives include a reinvestment allowance and tax credits for using local raw materials. economic development. This can be achieved by combating tax evasion, integrating the informal sector and helping taxpayers by simplifying the compliance process.

Businesses have a key role to play in economic development. Government should not be fixated on introducing new taxes and increasing tax rates on already over-burdened businesses and taxpayers rather than helping them grow and thereby increasing the tax base and tax revenue. ● For more information:

The real solution to more tax revenue is through widening the tax net through enforcement of compliance and growing the tax base through

Federal Inland Revenue Service: www.firs.gov.ng Joint Tax Board: www.jtb.gov.ng Nigeria Investment Council: www.nipc.gov.ng

2012 Edition | Doing Business in Nigeria

19

Relentech Specialists Nigeria Limited is an indigenous oilfield services company that provides a range of services in engineering, design, oil and gas and in the construction industries. Over the years Relentech’s team of professional engineers, technicians and seasoned project managers has been giving its clients the very best in terms of quality, reliability and efficiency.

There are many reasons why our clients call us “the Specialists” – as number one in our sectors, we truly are the most experienced, most reliable and most successful company.

Trust The Specialists relentech www.relentechltd.com Port Harcourt • Warri • Lagos • Abuja

Upstream:

Africa’s biggest oil producer Nigeria relies heavily on its oil revenues to the detriment of its other abundant resources.

Nigeria has shallow and deepwater drilling rigs off the Niger Delta.

Petroleum is Nigeria’s largest industry and main generator of income. The government, however, is trying to reduce the country’s dependence on petroleum. In 2000, for example, oil accounted for 98% of export earnings and 40% of GDP while today it accounts for nearly 90% of export earnings and 30% of GDP. Oil exploration in Nigeria dates back to the late 1800s, when early explorers recorded a few successes but eventually abandoned their search. It wasn’t until 1956 when Nigeria’s vast oil resources were finally revealed by Anglo Dutch Shell and then Shell D’Arcy.

The first significant oil discovery was made in Oloibiri, located in the Ogbia local government area of Bayelsa State in South–South Nigeria. Since then, the Niger Delta has become a beehive of exploration activities.

Today the petroleum industry is Nigeria’s largest industry and main generator of income. Oil accounts for nearly 90% of export earnings and 30% of its GDP. In 2000, oil accounted for bigger share of the economy

(98% of export earnings and 40% of GDP) indicating that government efforts to reduce its skewed dependence on petroleum seem to be working.

Oil reserves and production Nigeria’s oil is mostly located in the onshore Niger Delta, which also include the inland basins of Anambra, Benue, Chad, Borno, Benin and Dahomey.

It is also found in shallow and deepwater offshore regions. Nine states have oil reserves including Rivers, Bayelsa, Akwa Ibom, Delta, Imo, Abia, Ondo, Edo and Cross River states, all found in the Niger Delta.

As of 2011, the country’s proven oil reserves are more than 37 billion barrels. The country produces some 2.4 million barrels per day (bpd), making it the largest producer in Africa. A member of the Organisation of the Petroleum Exporting Countries (OPEC), Nigeria is the world’s 8th largest exporter of crude oil, with the US it biggest market importing 42% of the country’s oil exports.

Well heads Nigeria’s top seven oil and gas companies Company

Year founded

Revenues $M

Profits $M

CEO/Managing Director

NNPC

1977

n.a.

n.a.

Shell (SPDC)

1936

n.a.

n.a.

Mutiu Sunmonu (Country Chair)

www.shell.com.ng

Oando

1992

2,600*

76*

Jubril A Tinubu

www.oandoplc.com

Conoil

1960

640*

17*

John Vasikaran

www.conoilplc.com

Augustine O. Oniwon

Website www.nnpcgroup.com

Chevron

1978

466**

6**

Musa Yahaya

www.chevron.com

Mobil

1951

385**

19**

Adetunji A.Oyebanj

www.exxonmobil.com

Total (EPNL)

1962

n.a.

n.a.

n.a.

www.ng.total.com

*2010 **2009

21

Doing Business in Nigeria | 2012 Edition

Source: Nigerian Stock Exchange, Financial Times, websites

Black gold

George Osodi

OPEC members’ values of petroleum exports ($B) 2010 Saudi Arabia UAE IR Iran Venezuela Nigeria Kuwait Iraq Angola Libya Algeria Qatar Ecuador 0

50

100

150

200 Source: OPEC

Nigeria wants to increase oil reserves to 40 billion barrels and daily production to 4 million bpd respectively. Although these targets were set for 2010, they were not reached because of years of civil unrests and militancy in the oil producing Niger Delta.

But with the success of the government’s amnesty program these targets are once more back on track.

other majors, including Chevron, ExxonMobil, Total, Agip and Texaco, are in JOAs.

For example, Nigeria and Sao Tome (an island nation located off the coast of Nigeria in the Gulf of Guinea) recently signed an agreement in which a Joint Development Authority was created to explore and produce oil in the waters between Sao Tome and Nigeria, called the Joint Development Zone, or JDZ. This area could contain 14 billion barrels or more of oil.

Under JOAs, operators prepare proposals for the annual work program and expenditure in accordance with shareholding. Each party can opt for and carry on sole risk operations. Technical matters are discussed and policy decisions are taken at operating committees where partners are represented on the basis of equity holding.

JOAs Most of Nigeria’s oil operations are under joint operating agreements (JOAs). There are six JOAs with the Nigerian National Petroleum Corporation (NNPC), the national oil corporation. The NNPC holds a 60% stake in all the JOAs except in the Shell JV where it has a 55% stake. Shell Petroleum Development Company of Nigeria (SPDC) - is the largest privatesector oil and gas company in Nigeria. Most of the

Nigeria’s biggest oil producer is Shell Petroleum which accounts for more than 40% of the country’s oil production. Shell’s biggest project is the Bonga deepwater project with a capacity of 200,000 bpd.

Other major producers are Mobil, Chevron, Total, Agip, and Texaco.

Natural gas Nigeria is also one of the world’s top ten natural gas producers

22

en

Tu

rk

ria

m

Ni ge

an

ia

Doing Business in Nigeria | 2012 Edition

ist

ys

ds

ala M

lan

sia Ne

th

er

ne

ria

do In

a ad

r ta

Al ge

Ca n

Qa

ay rw No

Fe Ru de ss ra ian tio n

180 160 140 120 100 80 60 40 20 0

Source: IEA

All parties (to a JOA) share in the cost of operations.

Each partner can lift and separately dispose its interest share of production subject to the payment of Petroleum Profit Tax (PPT) and Royalty.

PSCs Production Sharing Contracts (PSC) are the preferred fiscal operation for oil companies in Nigeria. PSC agreements were created in response to the funding problems faced by the old JOA arrangement as well as the desire of the government to open up the sector for more foreign participation.

All new participants in the new inland deep and ultra-deep water acreages came in under the PSC. Costs are recoverable with crude oil in the event of a commercial find, with additional benefits from tax oil, cost oil and profit oil. Companies that come in under PSCs include: Statoil, Snepco, Esso, Total, Agip, Addax, Conoco, OMEL, Stirling, Sahara,

Energy

Success Story Too good to ignore Despite the negative publicity Nigeria attracted because of militancy and civil unrests in the Niger Delta, some companies still came into Nigeria’s petroleum industry, such as UK-quoted Afren, an independent exploration and production company. Afren was created in 2004 by five founders, including three Nigerians.

DBI: Why did Afren invest in Nigeria during the unrest?

Adebayo Ayorinde: Nigeria has always been a key focus point and at the very heart of the company. On the most fundamental level, Nigeria is the most prolific oil and gas Adebayo Ayorinde Managing Director producing nation in Sub-Saharan Africa and Afren Nigeria accounts for around 80% of proved oil and gas reserves that have been discovered to date across the region.

The sheer scale of the resource base and availability of numerous partnership opportunities, coupled with our strong ties and Nigerian management, meant that Nigeria held an instant appeal for us as a place to do business.

DBI: What assurances did you get from the government?

AA: Afren’s decision to invest in Nigeria was driven by the business opportunities we knew to exist, rather than any specific assurance or communication from the government, but the government’s focus over the last 10 years on trying to deepen indigenous production has contributed to the success of our business model.

DBI: Afren has a large portfolio of assets. What is the driving force?

AA: Our asset base in Nigeria is more mature and commercially advanced. We have existing production at Okoro and Ebok and we have strong technical knowledge of the surrounding areas where we are also investing in exploration and appraisal wells in 2012.

DBI: What has been Afren’s experience since investing in Nigeria?

AA: Given the success of our operations our experience has generally been very positive. Afren was founded with the objective of supporting the indigenous sector and so the value add that we bring to Nigeria can be quantified in a number of ways.

Firstly, simply by providing the access to finance and technical support required for indigenous companies to achieve production we are supporting the growth of the indigenous sector in the upstream oil and gas sector in Nigeria.

Secondly, Afren has had a clear policy since it was founded to build capacity in the countries where we operate. We do this in a number of ways. Internally, 95% of our permanent staff in Nigeria is Nigerian and we are very proud of this. Of the 95% of the Nigerian staff on our facilities, about 40% are local indigenes of those communities.

DBI: What success have you had since being in Nigeria?

AA: Since we were established in 2004, Afren has successfully completed two world class projects in Ebok and Okoro, grown an asset base across the country, extended our partnership model into direct investment into the indigenous sector and are now positioned for strong production and reserves growth from our existing portfolio in 2012. We are already the leading independent upstream oil and gas company operating in Nigeria and Nigeria remains at the center of our development plans.

Fundamentally, we believe that the opportunity set in Nigeria for Afren remains exceptional. Having proven our partnership model with Amni and Oriental, and expect average daily production of between 42,000 to 46,000 bpd from our existing asset base in 2012. When you consider that 37% of the oil and gas licenses in Nigeria are held by indigenous companies, but only 4% of those are currently producing oil, then the opportunity is clear for further growth.

DBI: What are your challenges and how did you overcome them?

Oando, Petrobas, Star Deep Water, Chevron, Oranto and Philips.

in 2000 under the Oil and Gas Industry Committee (OGIC), which pieced the initial bill together. Due to contentions over some fiscal terms the bill has remained stuck in the National Assembly for the past six years.

PIB The Petroleum Industry Bill (PIB) seeks to harmonize all other previous laws, about 15 of them, guiding oil and gas operations in Nigeria. The bill has struggled to attain relevance since the industry reform began

AA: Nigeria can sometimes be a challenging place to do business, but the combination of our local knowledge, access to finance and strong technical team have allowed us to overcome any challenges that we have faced. Our business model means that we secure assets often overlooked by the majors and implement innovative and fast developments to deliver value as quickly as possible.

“An investment-friendly bill will enable substantial long-term investment in the industry,” says Chike 2012 Edition | Doing Business in Nigeria

23

Onyejekwe, Managing Director of Shell Nigeria, which operates the Shell Bonga deepwater project, who also notes that the non-passage of the PIB is frustrating future investments in the upstream sector.

Diezani Alison-Madueke, Nigeria’s petroleum minister, identifies huge investments opportunities in the industry in the areas of engineering design and related services, petroleum engineering services, fabrication and construction, pipe mills, equipment leasing, civil works, logistics and haulage, financial services, legal services, as well as hospitality services for industry workers.

“An enabling environment for investment is important and we are continually evolving to adapt to the challenges of the time,’’ Diezani Alison-Madueke says.

In harmonizing the existing laws, the PIB also seeks to streamline the functions of the various agencies that regulate Nigeria’s oil and gas operations.

Downstream:

Driving investment One of the benefits of the ongoing reforms in Nigeria’s oil and gas industry, especially the downstream sector, is to make it attractive to foreign investors.

A

lready numerous local operators are entering Nigeria because of the turnaround on investment and easy access to funding from Nigerian banks to run their operations. Indeed, the downstream sector is the mirror of the upstream because it is the closest to the people, providing the refined petroleum products they use for business and domestic uses.

As a result there are numerous opportunities for future investments.

Deregulation of the downstream sector is identified as a move to attract foreign direct investment. The sector is not as fully deregulated. Some petroleum products, notably premium motor spirit (PMS or gasoline) and household kerosene (HHK), enjoy a

24

Doing Business in Nigeria | 2012 Edition

government subsidy. Other petroleum products have been deregulated, including automotive gasoil (diesel), bitumen, aviation turbine kerosene (Jet A1), Lique!ed Petroleum Gas (LPG), fuel oil (LPFO) and a host of other products.

To reduce the burden on consumers, the Nigerian government reimburses oil marketers who sell gasoline and kerosene below prevailing market prices. Recent measures to remove the subsidy, which resulted in a 49% increase in the pump price of gasoline, met with stiff resistance from organized labor and civil society groups.

Benefits of deregulation Downstream deregulation dates back to 2003 when the Nigerian government started phased deregulation of the sector.

“The benefits of deregulation include opening the sector for competition and removing entry barriers in the supply and distribution of petroleum products,” says Reginald Stanley, Executive Secretary of the Petroleum Products Pricing Regulatory Agency (PPPRA), which regulates commercial activities in the downstream sector. “Deregulation eliminates waste and corruption, a development that brought the subsidy regime under probes, and gives fair margins to marketers.”

The subsidy probes underscore more than anything else the need to open up the sector to a free market economy, as regulation makes it unattractive to

Gas rules Consumption of petroleum products by type (1000s b/d) 2010 Residuals 2%

Others 2%

Distillates 12%

Kerosene 12% Gasoline 72%

Source: OPEC

Energy

Petrol products Key petroleum-related facts and figures 2010 Value of petroleum exports ($ billion)

61.8

Proven crude oil reserves (billions barrels)

37.2

Natural gas reserves (billions m )

5,110

Crude oil production (1,000s b/d)

2,048

3

Natural gas marketed production (billions m3)

28.1

Refinery capacity (1,000s b/cd)

445

Consumption of petroleum products (1,000s b/d) Crude oil exports (1,000s b/d)

259 2,464

Exports of petroleum products (1,000s b/d) Natural gas exports (billions m ) 3

23.1 20 Source: OPEC

investors. This is the reason why the oil majors operating in the sector – Shell, Mobil, Chevron, Total and Agip – all refuse to invest in refining. Almost all of them, excluding ExxonMobil and Total divested from the sector.

The exit of these majors gave room for other players, such as Oando, Conoil, Forte Oil (formerly AP), MRS, Capital Oil and Gas and Sahara, to emerge as big players. However, the Pipeline and Products Marketing Company (PPMC), the commercial arm of the state-owned Nigerian National Petroleum Corporation (NNPC), is the biggest player and owns most of the downstream facilities.

But under current reforms, the situation is expected to change as opportunities abound not only in oil, but also in downstream gas.

“Across the sectors, investment opportunities abound for willing multinationals and other partners as the federal government has worked out different investment partnership models, especially through Public Private Partnerships to guarantee returns on investments,’’ says Diezani Alison-Madueke, Nigeria’s Petroleum Minister.

Existing facilities Currently, Nigeria has four refineries including Port Harcourt 1 and 2, Kaduna and Warri, with a combined capacity of 445,000 barrels per day. There are 5,120 km (3,200 miles) of pipelines that transport petroleum products across the country.

The NNPC owns 22 storage depots and a host of other depots are owned by private operators under

the auspices of Major Oil Marketers Association of Nigeria (MOMAN). MOMAN is made up of oil marketing ventures owned by the local affiliates of international oil companies, most of which have been bought out by Nigerians. It comprises Mobil Oil, Total, Oando, MRS, Conoil and Forte Oil. Depots owned by MOMAN include NIPCO depot, the commercial arm of the Independent Petroleum Marketers Association (IPMAN), as well as those owned by the Deport and Petroleum Products Marketers Association (DAPPMA) and those belonging to Jetty and Petroleum Products Tank Farm Operators of Nigeria (JEPFTON). Apart from the NNPC, DAPPMA and JEPFTON, all other downstream trade associations cater for their members.

IPMAN has the largest membership and is mostly made up of small indigenous marketers who own one or two outlets in particular locations. Their numbers make them less manageable. DAPPMA and JEPFTON are more of the tank farm operators.

The majority indulge in throughput arrangements for storing petroleum products, while only a handful has retail outlets.

Opportunities Even though these facilities seem an awful lot, for a country with about 150 million people, they are hardly adequate. As such, investors will have huge returns on investment by investing in logistics for supply and distribution (especially petroleum trucks), pipelines, and storage facilities outside Lagos as the region is already saturated and under pressure for products supply from other states.

Pipeline security offers another opportunity for wealth creation as pipeline vandalism is on the rise, leading to more than 20% product losses annually.

Petrochemical is another area with huge prospects in the areas of refined mineral oil, petroleum jelly and grease. Building of asphalt storage, packaging and blending plants to handle products for export are also required.

Natural gas Nigeria is now referred to as more of a natural gas country than oil with almost four times the amount of gas than oil reserves. Gas reserves are estimated at about 187 trillion cubic feet (tcf) in addition to an undiscovered potential as high as about 600 tcf.

As a result, investors from the US, India and Saudi Arabia are seeking a chunk of the opportunities offered by gas.

2012 Edition | Doing Business in Nigeria

25

George Osodi

Other key LPG opportunities include the domestic production and marketing of LPG, as Nigeria has one of the least per capita consumption of LPG estimated at 0.5%. Other opportunities include manufacturing of LPG cylinders, valves and regulators, installation of filing plants, retail distribution and development of simple, flexible and much less expensive gas burners to encourage the use of gas instead of wood and other fuels; exploration, gathering, production and processing to transmission; and the establishment of small scale industries to produce chemicals and solvents, for example chlorinated methane, formaldehyde, acetylene, etc., from natural gas.

However, despite the huge gas resources, the focus is more on export gas than domestic gas, which creates a huge gap in the system. The Gas Master Plan, popularly tagged the Gas Revolution, was approved

by President Goodluck Jonathan in February 2008 as a guide for the commercial exploitation and management of Nigeria’s gas sector.

The Plan aims at growing the Nigerian economy with gas by stimulating the multiplier effect of gas in the domestic economy, positioning Nigeria competitively in high value export markets, and guaranteeing the long-term energy security of Nigeria.

“We are pursuing the development of Nigeria’s natural gas sector from three distinct anchors,” says David Ige, Group Executive Director of NNPC’s Gas and Power division. “The first is gas-to-power, the second is gas for gas-based industrialization, and the third is gas for export, which includes regional and export Liquefied Natural Gas or LNG.”?

Ige argues that each of these key areas presents a deluge of investment opportunities.

“We have investment opportunities in pipelines,” he says. “We are looking for investors to participate in the central processing facilities. We are also looking for investors to participate in the LPG value chain, and we are looking for general infrastructure players – civil and ports infrastructure and also infrastructure investors that will play a role in all the free trade zones we are working on.”

26

Doing Business in Nigeria | 2012 Edition

The Gas Master Plan has specific timelines for project targets. For gas-to-power, the objective is a four-fold increase in generating capacity by 2015. For gasbased industrialization, the goal is to build three major centers for gas processing and extraction for gasbased industries in order to reposition Nigeria as the preferred destination for gas-based industries, such as fertilizer, petrochemical and methanol.

LNG For gas export, Nigeria’s Liquefied Natural Gas (LNG) sector is reputed to be the fastest growing in the world. The Nigeria LNG plant has an installed capacity of about 22 million tons per year of LNG and 4 million tons per year of LPG. Plans are underway to increase capacity to more than 30 million tons a year.

Shareholders in the Nigeria LNG plant include NNPC (49%), Shell Gas B.V. (25.6%), Total LNG Nigeria (15%), and ENI International (10.4%). Several other LNG projects are underway. Furthermore, most of the oil majors are involved in gas-to-liquids projects to meet rising global energy demand. ● For more information: Nigerian National Petroleum Corporation (NNPC): www.nnpcgroup.com National Petroleum Investment Management Services (NAPIMS): www.napims.com Department of Petroleum Resources (DPR): www.dprnigeria.com Petroleum Products Pricing Regulatory Agency (PPPRA): www.pppra-nigeria.org Nigerian Content Development Management Board (NCDMB): www.ncdmb.gov.ng National Petroleum Research Center: www.nnpc-nigeria.com Petroleum Technology Development Fund (PTDF): www.ptdf.gov.ng Petroleum Equalisation Fund (PEF): www.pefmb.gov.ng

Power to the people After decades of neglect, Nigerian electricity generation is being addressed. A reform program involving government regulation and partial privatization of electricity generation, transmission and distribution, aims to fill the gap between power supply and demand.

Current energy supply Nigeria relies on two principal sources for its energy production: hydro-electric power and thermal plants (gas-fired). Large hydro installations (dams on the rivers Niger and Kaduna, among others) account for about 41.7% of grid electricity generation in Nigeria today while natural gas accounts for the balance of 58.3%.

Most developed countries rely on a palette of different energy production sources that include natural gas, hydro-electricity, coal, nuclear, solar, and wind power.

It will be Nigeriaâ&#x20AC;&#x2122;s challenge in the coming decades to diversify its production palette accordingly (see chart comparing Nigeria and South Africa).

Current projection points to a gradual decrease in total share of hydropower installed capacity from 21% to about 11% by 2030 (see chart), while the share of natural gas based power capacity will drop to about 55% at that future horizon.

Most Nigerian electricity comes from thermal plants.

neglect, should be able to be effectively reconnected and used. How much this represents remains a mystery.

For hydro-electric production, the Energy Commission of Nigeria estimates that large hydropower projects could represent about 11,250 MW of annual production, although this would be from largescale projects with investments of several hundred million dollars. On a somewhat smaller scale, small hydropower projects could add 735MW of energy capacity to the grid. Furthermore, this is low-carbon, sustainable energy production of the kind that helps the world globally.

Current energy demand Nigeriaâ&#x20AC;&#x2122;s economy has grown phenomenally since 1999. GDP growth peaked at 7.5% in 2011. The

Greater energy diversity Nigerian energy production by source 100%

Coal and nuclear are currently not in use for power generation but are projected to account for 15.6% and 6.8% by 2030.

A significant unknown is the true load factor at the thermal generating plants across the country. This has been in steep decline, yet some of the generating capacity that was mothballed over three decades of 28

Doing Business in Nigeria | 2012 Edition

Solar

80%

Percent of Total

One of the paradoxes of the Nigerian energy scene is that the country has unused production capacity, both on the thermal and the hydro-electric fronts. Because of various inefficiencies, namely the mothballing of several thermal plants over the past decades, there is generating capacity that sits idle.

Wind Nuclear

90%

Coal

70%

Hydro

60% 50% 40%

Gas

30% 20% 10% 0% 2010

2015

2020

2025

2030

Source: Energy Commission of Nigeria (National Enrgy Masterplan)

Power

• Poor maintenance of transmission lines.

Transmission lines are poorly maintained and frequently vandalized, resulting in transmission losses of over 25% of the electricity produced, compared to a normal loss rate of less than a ten-thousandth of one percent in developed countries. The lack of new transmission lines is another contributing factor.

George Osodi

• Vandalism and theft.

International Monetary Fund (IMF) is projecting a 6.6% real GDP growth rate for 2012.

Yet the combination of high economic growth and chronic under-investment in the power sector over the years has created a gaping discrepancy between power supply and estimated power demand.

According to some estimates, the projected annual demand is a whopping 12,000 MW vs. an estimated supply of only 4,420 MW. In other words, only onethird of power demand is being satisfied.

What explains this gap?

The prime culprits are five-fold.

• Insufficient generation units. Although generating capacity has been increasing over time (see chart), the current peak generating level, 4,420 megawatts, is in fact estimated the highest ever attained historically.

Attaining this level of generation has been possible due to continuous improvement in capacity of generation stations across the country. This is quite an achievement since the beginning of the power reforms of 2005. At that time, of the 79 generation units in the country, only 19 units were operational.

Back then, the average daily generation was only 1,750 MW, or less than half of the current level.

And these improvements were made without investments in new generating capacity – just via better operation, maintenance and efficiency improvements.

• Lack of access. An estimated 90 million people (about 36% of the population) are without access to the electric grid. This enormous untapped potential will be a tremendous growth driver for new investors in the sector.

• Non-payment. According to the most accurate estimates of industry losses, over 30% of electricity delivered is never paid for by the end users. This gap in financial receivables is due to poor billing procedures.

The reform program The Electric Power Sector Reform Act of 2005 was the seminal stepping stone in the reform of the a longneglected power sector. This road map for electricity generation and distribution nation-wide set the stage for the reform process to unfold.

As part of the reform, on October 31, 2005, the government created the Nigeria Electricity Regulatory Commission (NERC) as an independent regulatory agency. NERC is mandated to carry out the monitoring and regulation of the electricity sector, to issue licenses to market participants and to ensure compliance with market rules and operating guidelines.

In July 2008 a new electricity pricing mechanism was introduced by NERC, called the Multi-Year Tariff Order (MYTO), to help determine charges and tariffs for electricity generation, transmission, as well as retail tariffs, over the period from July 2008 to June 2013.

MYTO also provides a 15-year tariff path for the sector with limited minor reviews each year in the light of changes in select parameters and periodic reviews.

This pricing regime provides the structured framework to reassure and encourage investors, and provide fair entry levels for them.

In January 2012, the Power Ministry executed the first radical transformation in the electricity sector.

It liquidated the Power Holding Company of Nigeria (PHCN), setting the scene for a positive evolution of the sector.

“PHCN is no longer legally in existence”, the Minister of Power Barth Nnaji said, putting an end to what was largely viewed as a huge failure.

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29

The main components of the reform program are: • elimination of the old PHCN for the benefit of 18 replacement institutions, covering the areas of electricity generation, transmission, and distribution; • increased privatization. The reform has focused primarily on promoting private sector participation in the form of investment in generation, management and technical operations and ensuring a level playing field for both local and foreign investors.

• ensuring that all capacity, irrespective of its relative inefficiency, continued to operate. The reform strategy points to an increase in losses in the electricity transmission lines as a result of this inefficient use of thermal capacity generation. Thus, how effective the new policy will be in ensuring that generating units are not cannibalized for spare parts is a key question. The level of cannibalization will determine the trade-off between maintenance investments and new facility investments.

• Elimination of untargeted spending in the sector.

The government pushed the reform package to reduce the supply-demand gap. In parallel, companies throughout the country were complaining about the high cost of doing business. The reforms reflect pressures far beyond the Nigerian boundaries.

At times when companies are looking for ways to boost efficiency, the electricity sector was lambasted for its negative impact.

Although the groundwork has been laid, there remains much to be done by the government to create a clear and stable investment environment, and thus encourage funds to flow at the scale and pace needed to keep the lights on.

Privatization plans The framework requires that the state-owned power entity, National Electric Power Authority (NEPA) unbundle its activities in the generation, transmission and distribution areas. NEPA must provide for the transfer of assets, liabilities and staff to successor generation, transmission and distribution companies, thus creating a competitive market for electricity 30

Doing Business in Nigeria | 2012 Edition

Hampered consumption Nigerian annual energy consumption 25

20

Billon KwH

The move, which marks a milestone in the federal government’s complex plans to guarantee security of electricity supply, increase electricity generation, while keeping electricity affordable, effectively opened up opportunities for the 18 unbundled successor companies of PHCN to be sold to successful bidders by the end of the first quarter of 2012 as projected by the Bureau of Public Enterprise (BPE) and the Power Minister.

15

10

5

0

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

services in Nigeria as well as setting up an independent regulator.

The Electricity (Amendment) Decree 1998 and the NEPA (Amendment) Act 1998 were passed, terminating the monopoly status of NEPA and officially inviting the participation of the private sector into the country’s electricity sector.

In November 2005, 18 new successor companies comprising six generation companies, one transmission company and 11 distribution companies were incorporated. The market rules to guide the operations in the sector were approved in 2008 and the liquidation of PHCN began later in April 2011.

The strategy for the successor regulatory company also was put into place, defining the rules of engagement for the private sector participation.

The distribution companies (Discos) were to be privatized through equity sales to core investors.

The transmission company (TranSysCo) and the generating companies (GenCos) were slated to be auctioned off to core investors or through concession.

The GenCos put up for sale include the thermal stations, Geregu Power Plc in Kogi State (North Central Nigeria) which has installed capacity of 414 MW, the Ughelli Power, (Delta State, Nigeria), built between 1966 and 1975 with installed capacity of 972 MW, the Sapele Power in Sapele, also in Delta State with installed capacity of 1020 MW and the Afam Power, located in Rivers State, with installed capacity of 776 MW. The hydroelectric generating stations are the Kainji Hydro Electric, comprising Kainji and Jebba plants.

Power

This is the first hydro power station established on the River Niger and has total installed capacity of 1,344 MW. The Shiroro Hydro Electric established in 1990 has installed capacity of 600 MW.

power infrastructure range between $500 and $800 billion, depending on the growth scenario. The federal government currently bears the burden of financing issues in the sector.

There are also three non-operational thermal stations slated for asset sale. These are Calabar with 7.6 MW installed capacity, the Ijora thermal power station in Lagos with installed capacity of 60 MW and the Oji River power station in Enugu State (East Nigeria) with installed capacity of 30 MW. This is a coal-fired station close to the coal mine.

However, challenges other than financial also lie ahead. International experience indicates that electricity reform can raise thorny technical issues, such as market design, market structure and regulatory arrangements. Managing this transition will prove to be a considerable challenge for the Power Minister.

The federal government has yet to conclude the process of privatization of these utilities but have so far received bids from 207 pre-qualified bidders: 80 bids for the Discos, 87 bids for the thermal Gencos and 40 bids for the hydro Gencos.

Another priority for the Nigerian authorities is to balance out the production palette, which currently relies solely on hydroelectric and thermal sources.

First signs of diversification are appearing. Zuma Energy, a wholly indigenous company, is prospecting for coal, its focus being to provide enough coal for electricity generation by 2015.

These ambitious reforms underline the federal government’s ambitious target of reaching a generation capacity of 40,000 MW by 2020. To achieve this target, the government estimates that it will take an investment in power generating capacity alone of at least $3.5 billion per annum for the next 10 years.

Future prospects Vast plans require vast resources. Because of thirty years of relative neglect, the Nigerian power scene is a shambles. How much is required to make things right? Various figures have been bandied around.

The estimates for the cost of restructuring Nigeria’s Other

249,557

Hydro

This country needs more power!

Nuclear

Nuclear energy is also being considered, despite doubts given the enormity of financial resources, required skills and the technology available locally.

Solar energy’s commercial deployment remains limited for the short to medium term. According to the government’s master plan, it is projected to account for about 8.3% of generating capacity by 2030.

Nigeria remains very richly endowed with renewable energy resources that remain hugely untapped.

Biomass, wind, solar, geothermal and ocean energies are available but still not explored or limited to pilot and demonstration projects.

Losses & other

Benchmarking of Nigeria vs. South Africa Energy production vs. consumption

193,186 Commercial

19,777 Losses & other

18,051

Gas

Industrial

Hydro

Commercial & Public

Oil

Industrial

Production

Consumption NIGERIA

Residential Coal S. Africa is 13 times bigger

Industrial

Production

Consumption SOUTH AFRICA

Notes: Figures are for 2009 in GWh.; Not to scale; South Africa is about 13 times biiger than Nigeria in electricity production.

Source: IEA

What are the main challenges to the development and diffusion of new technologies for the new electricity generation? The absence of ready markets, as well as the lack of appropriate policy, regulatory and institutional frameworks to spur demand and attract investors.

Mediaside thanks Charles Ike-Okah, Deputy Editor of Business Day daily newspaper, based in Lagos, for his assistance with this analysis.

2012 Edition | Doing Business in Nigeria

31

Finding new life in old turbines Why embark on a costly capital expenditure program when idle capacity can be found? incurred, funds do need to be set aside for the unexpected snafu’s that are bound to occur.

There exists a major gap between installed capacity and available capacity. Installed capacity in Nigeria exceeds 13,000 MW, but only up to 4,800 MW is available on a daily basis for actual power generation.

“Why is this installed equipment sitting about idle?,” asks John Aggelakos, associate director at KPMG. “There are several issues that impact power availability. Three of them deserve more ample explanations.” Firstly, there is the difficulty of supply chain inefficiencies: the fuel supply, be it natural gas or oil, is alas often not delivered as it should, meaning that machinery sits idle.

Secondly, there is inadequate maintenance of assets. The budgeting of power generation projects includes funds for both initial setup and for maintenance, but these latter funds often disappear, since it is difficult to store the funds away in an “power escrow” account, so to speak. This issue needs firm government handling.

Lastly, there is the perennial problem of insufficient recurring investment. Although the bulk of power capex does occur during the power plant’s initial installation, when construction and equipment costs – especially for costly imported turbines – are

So much idle capacity

“How can the government quickly re-capture some of the idle capacity?” pursues Aggelakos. “One possible solution to Nigeria’s power generation supply deficit is rehabilitating existing capacity so as to almost triple available capacity. Our analysis shows that there are three “sources” for untapped capacity (see chart).”

The twelve existing federal government power stations could provide an additional 3,500 MW of electricity. The main “lazy plants” in this category are Delta Power and Afam Power. Just those two plants, if dusted off and booted up, could provide a whopping 1,300 MW of additional power.

The second source of adiditonal capacity is less productive: the six independent power producers are only about 250 MW below full capacity. The two RSG plants are worth mentioning here though since they could add about 200 MW. The third source are the ten power plants of the National Integrated Power Project. These are all offline but could kick in to provide almost 4,800 MW of power (see chart).

Sources of extra power generation capacity (without new capex)

3,517 MW

4,775 MW 275 MW

Existing Gov’t Power Plants Installed Capacity Number facilities

Existing Major Independent Power Plants

6,905 MW

1,759 MW

4,775 MW

12

6

10

Available capacity (idle)

32

National Integrated Power Project

Productive capacity

Doing Business in Nigeria | 2012 Edition

Source: KPMG

How can the government get this done, whilst reducing its financial exposure and ensuring that proper technical expertise is deployed? For KPMG, the most effective financial framework is the public-private partnership (PPP) model, whereby the government grants concessions for the relevant projects to the private sector. Thereby the state maintains ultimate ownership of the assets, but outsources the rehabilitation and subsequent operations and maintenance to its private partner.

KPMG is currently advising a state-sponsored IPP (Integrated Power Project) project. Unlike other IPP projects, this one will be entirely owned by the state government during the development phase.

As construction nears completion, the project will be flipped to private power producers under a PPP arrangement. The appeal of this structure? The state government assumes the pre-sale risk, and is better positioned to negotiate a suitable PPP arrangement – one that both better serves social interests and satisfies private sector demands for adequate riskadjusted investment returns.

is a leading, full service Nigerian commercial law firm, providing innovative commercial solutions for clients with diverse needs. With over 55 lawyers and 9 partners, Templars is strategically placed for quality legal service delivery to clients in Nigeria’s major economic hubs. The firm is broadly organised into Corporate Commercial, Energy & Projects, Finance and Dispute Resolution Practice Groups.

‘Views from the Market’ reflect Templars’ consistent ranking among the leading commercial law firms in Nigeria: “Templars is professional. Bright and sensible”... the best regarded firm in oil and gas matters and “provides clear legal advice” IFLR 2011 “…very efficient and customer driven, with clients getting their money’s worth in terms of quality” Legal 500, 2011 “…a frequent presence in high-value transactions” … “first choice for oil and gas in Nigeria”. Chambers & Partners, 2011 “…Templars is highly recommended for tax work.

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Mining attracts renewed attention Nigeria is far richer in other minerals than the petroleum endowment for which it is best known.

N

igeria has more than 34 solid minerals, including coal, bitumen and tars, gold, iron ore and barite in vast (and mostly untapped) deposits in over 450 locations nationwide that can be mined commercially.

Nigeria’s solid minerals cover about 95% of the country’s 88,000 square kilometres, according to the Mines and Steel Development Ministry.

The mining sector used to be one of the mainstays of Nigeria’s economy before oil was discovered in 1956.

Tin, lead, zinc and columbite were exported to earn foreign exchange pre-independence era in 1960 and earlier. Coal was mined to power electricity plants and used as fuel for locomotives as well as exported.

Today, the sector contributes less than one percent to the nation’s GDP, according to the National Bureau of Statistics.

A number of reasons are responsible for the decline of the sector over the last three decades, which are mainly economic as well as political. The discovery of crude oil in the late 1950s also aided the neglect and gradual shift in focus from the mining sector.

Mining revival In the last three years, there has been more focus and a deliberate policy shift from the government to revive the sector. The government of President Goodluck Jonathan is repositioning the mining sector and embarking on reforms that will create a conducive environment to encourage foreign direct investments.

“Our policy is to welcome all credible investors and we will continue to do all that we can to create the right conditions for them to thrive,” President Jonathan said in an emailed statement in December 2011.

The government considers mineral exploration and 34

Doing Business in Nigeria | 2012 Edition

The government is now focused on reviving the mining sector.

the development of the mines sector a high priority because of its potential to spur economic growth.

Revitalizing the sector will help create jobs and also serve as an alternative source to generate revenue and boost foreign exchange earnings.

To achieve this end, the government embarked on a number of reforms to revive the mining the sector, chief among which is the total overhaul of the laws regulating the sector, establishing a mining and mineral regulations and setting up a dedicated mining cadastral office to oversee the award and regularization of mining titles.

At the heart of President Jonathan’s drive to revive the sector and attract private sector investment is a role reversal for the government from the conflicting position of “owner, operator and regulator’’ to that of a “regulator.’’ The government also is putting in place new investor-friendly mineral policy to encourage new entrants to the industry.

The new law is hinged on better transparency in granting licenses or leases, long-term security of tenure, competitive fiscal provisions for mining leases and ultimately, fostering a mines sector led by private sector participation and leadership. The Cadastre Office was set up as an autonomous agency saddled with the responsibility of handling all matters relating to mineral titles including granting and processing titles.

The office receives and disposes of applications for the transfer, renewal, modification, relinquishment of

Mining

Insight

Attracting investors Although the mining industry only just re-opened for business after the reforms, evidence of a successful reform process is starting to sprout as the government has begun attracting new investors, evidenced by the signing memorandums of understanding with new entrants.

George Osodi

In October 2011, the government launched the Australia - Nigeria Trade and Investment Council as part of efforts aimed at attracting foreign direct investment into the country, particularly into the mining industry.

titles or extension of areas, as well as the maintaining a register of all titles. Investors will not invest if they cannot be assured of the security of assets they create, according to the Mines and Steel Development Minister. The Cadastral Office, which is located in the capital of Abuja and has regional offices, has jurisdiction over the entire country.

Key surveys completed Already in place is relevant geological data on the distribution of mineral deposits across country. A high resolution airborne geophysical survey including magnetic, radiometric and electromagnetic surveys covering the entire the country and comprising more than 1.8 million line kilometers was completed in 2009.

The surveys aim to provide more reliable data and information required for necessary investment exploration in the country. The geophysical data allows for efficient, effective and a more accurate access to mineral data by investors, according to the ministry of mines and steel development. It is intended to speed up the mining industry investments with the proper publishing of geophysical data. Investors will be given access to these geophysical data electronically to fast track the development of the industry and encourage investors, the minister said.

Investors wanted Despite the country’s vast mineral deposits, the mines sector contributes less than a percent to the GDP. The mining sector has lost its place as the second largest source of revenue, foreign exchange

To start with, the Nigerian program is aimed at attracting investments from the top ten Australian companies, including mining giant Rio Tinto. Plans are to launch similar councils with eight other countries.

In December 2011, the government also signed a $1 billion memorandum of understanding with the Bakrie Group of Indonesia to invest in the mining industry as well as other related industries.

“There are a lot of opportunities in the country,’’ Trade and Investment Minister Olusegun Aganga says. ``The opportunities are here, the risk is here but the return on investment here is much higher than that of any other developing economy.”

The government in December also signed a similar memorandum of understanding with JRJ Technology and LLC USA, a consortium of American and Canadian investors and engineering and construction companies, to invest and mobilize credible investors into the mining industry.

The Trade and Investment Ministry is also on the verge of crystallizing a deal with an unnamed investor that will lead to an immediate investment of $100 million in the mining industry, and a further $4 billion in the short- to medium-term.

“Investment is coming in,” Aganga says. “I want more, that is the difference. I am not satisfied where we are, we can do far more with the opportunities here. We will do whatever we need to make sure we have the best and make Nigeria an investment designation in terms of improving our investment climate.” earner and employer of labor after agriculture. The government plans to diversify the economy from crude oil, focusing more on the mining sector by providing incentives for private investors willing to inject capital into developing the sector.

2012 Edition | Doing Business in Nigeria

35

Long neglected Nigeria has enormous unexploited mineral resources Mineral Resource Bitumen** Coal

Reserve Estimates (MMT*) 27 1,487

Gold** Barites Limestone

Main Sites Ondo, Lagos, Ogun, Edo States Benue, Enugu, Nasarawa, Gombe, Edo, Anambra, Abia, and Ondo States

50,000

Cross Rivers, Edo, Kaduna, Katsina, Kebbi, Niger, Osun, Zamfara States

12

Benue, Cross Rivers, Adamawa, Yobe, Nasarawa, Enugu, Taraba States

1,356

Enugu, Cross Rivers, Ogun, Edo, Benue, Gombe, Sokoto, Adamawa, Ebonyi, Imo and Yobe States

Iron ore

478

Kogi, Nasarawa

Marble

80

Oyo, Edo, Nasarawa, Kogi, Katsina, Niger and FCT

Dolomite

167

Kogi, Oyo, Edo, Nasarawa, Kaduna States and FCT

Kaolin

4

Katsina, Plateau, Ogun, Bauchi, Ekiti, Ondo and Anambra States

Granite

3

Plateau, Ondo, Ogun, Bauchi, Borno, Adamawa, Kogi, CrossRivers, Oyo and Imo States

*Millions of Metric Tons; ** Bitumen in milion barrels of oil equivalent; gold in ounces

“The government is seeking investors for mining at least 34 different types of minerals, including more than 600,000 ounces of gold, about 3 billion tons of coal, more than 2 trillion tons of barite and bitumen deposits of at least 27 billion barrels of oil equivalent,” Mines Minister Mohammed Sada told delegates last November at an investment conference in Abuja.

Investment promotion According to Sada, the government is setting up a mineral investment promotion unit in the ministry of mines and steel that will improve investment relations, particularly for new investors into the mines industry.

The unit will help investors access investment information on minerals or metals more easily.

“The mining industry is currently going through reforms whereby government is making laws binding the sector and in the interest of investors,’’ Sada said. ``We are in the process of setting up a unit in the ministry for mineral promotion and investment in order to make it easy and create an enabling environment whereby there will be one office to go and make enquiries about mineral investment.’’

Rich opportunities Exploration opportunities abound in gold prospecting and mining, coal mining for power generation and export, barites for export and local industry use, tar sands and bitumen, lead, zinc, iron ore for steel mills and export, and limestone/calcite for cement and ceramic industries.

36

Doing Business in Nigeria | 2012 Edition

Source: Lagos Business School

“Nigeria has enormous resources, and most of them are yet to be fully exploited in various sectors such as minerals, agriculture and human resources,” says Ehioma Goodwill, CEO of the Rhodium mining company.

“The country is gradually embracing a politically stable environment, which is a plus for investors. Other factors include unrestricted movement of investment capital, a free market economy, a well-developed banking and financial sector, and the rapid development of physical and industrial infrastructure. There are also the attractive tax holidays, tariff concessions and export support known as Pioneer status.”

The government will provide tax incentives, particularly to foreign investors and new entrants, to boost investments in the mining industry. Government is also planning to improve infrastructures in order to attract investors. New investors will get a three-to-five year tax holiday, a reduction in capital tax to 10%, from 20% and companies profit tax to 30% from 35%.

Capital allowances for as much as 95% of qualifying expenditure will be offered to new investors for as much as 95% of qualifying expenditures as well as waivers of custom and import duties for mining equipment. Moreover, titles and licenses are protected, secure and are transferable. ● For more information: Ministry of Mines and Steel Development: www.mmsd.gov.ng Mining Cadastre Office: www.miningcadastre.gov.ng

HEAD OFFICE: 17, Adetokunbo Ademola Street, Victoria Island, Lagos. Tel: 0709 873 0482, 0709 882 0647, 0709 812 3670, Fax: 01,4617200, 4615817. Branches Nationwide

Addressing agriculture The Nigerian government is waking up to the fact that agriculture can play a key role in lessening the country’s dependence on oil, reduce food imports and feed its people.

D

espite its huge population and vast arable land, Nigeria agriculture capacity has dwindled in recent years. The country spends trillions of Naira annually on food imports despite the fact that it has a land area of more than 924,000 square kilometers of which three-quarters is suitable for farming. The problem is that less than half of that land is being exploited agriculturally.

Still, because of its abundant land and water resources, Nigeria’s output of food per capita is among the highest in Sub-Sahara Africa and agriculture still accounts for 40% of GDP. The sector provides employment (both formal and informal) for 60% of the country’s population of approximately 160 million people.

Nevertheless, the undeveloped state of the country’s agriculture is shown by the fact that 80% of agricultural output comes from poor, rural farmers farming on less than one hectare plots. Most of the smallholder

Yummy yams Yams (sweet potatoes) and cassava top Nigeria’s bountiful agriculture (2010) 7,000 6,000 Production ($M)

5,000 4,000 3,000 2,000 1,000 0

s ts va uit les Yam assa rus fr etab ndnu u C g Cit Ve Gro

e

Ric

ize

Ma

m es let meat ato orghu at S Tom Go

Mil

Source: FAO

38

Doing Business in Nigeria | 2012 Edition

Agriculture provides employment for 60% of Nigeria’s population.

farmers lack access to capital to purchase seeds, fertilizers, herbicides, and buy or rent mechanized equipment and related services to increase their productivity and raise their incomes enough to get out of poverty.

While successive administrations have focused on developing the capital-intensive oil sector, the agricultural sector has been neglected. As a result, Nigeria, which was a large net exporter of agricultural products before the oil boom in the 1970s, is now a net importer of agricultural products. In 2010, agricultural imports exceeded $3 billion.

Moreover, there are regular shortfalls in national domestic production, which, while on the rise, is not enough to meet national food demand. Part of this is due to post-harvest losses which range from 20% to 40% because poor harvesting, processing and storage techniques. Due to the unstable food supply, 61% of Nigerians are malnourished.

Boosting production To resolve this situation, in August 2011 the federal government identified agriculture as a key development priority. By focusing on agriculture, the government hopes to halve poverty by 2015 and diversify the economy away from the oil sector. The aim is to make agriculture a business rather than a development issue with emphasis on public private sector partnership (PPP). The government’s efforts will focus on five crops (rice, cassava, sorghum, cocoa and cotton) and is expected to inject a total of $2 billion additional income into the hands of Nigerian farmers.

Agriculture

George Osodi

Gordon Bristol, Nigeria’s Ambassador to France, said in an interview. “Our path to industrialization has to come through the development of agroallied industries. We have large areas of arable land and there are literally no tropical cash or food crops that we cannot grow in Nigeria. However, we need to grow them on a large commercial scale thereby seeing agriculture as a business that adds value to the economy.”

By 2015, the government intends to increase the annual production of rice from the current 3.4 million metric tons to 7.4 million metric tons; cassava production from 34 million metric tons to 51 million metric tons; sorghum production from 9.3 million metric tons to 11.3 million metric tons. Cocoa bean production is projected to increase from 250,000 metric tons to 500,000 metric tons with For the cotton lint sub-sector, the agriculture ministry aims to achieve a record increase of 140,000 metric tons from its present production level of 20,000 metric tons.

Minister of Agriculture and Rural Development, Dr. Akinwunmi Adesina says that the agricultural sector has the potential to create about 3.5 million jobs under the program. “If we fund the sector well, about two million jobs can be created from cassava alone, one million jobs can be created from rice, about 400,000 jobs can be created from cocoa, while about 125,000 jobs can be generated from cotton,” Adesina says.

Nigeria has seen some improvement under earlier programs. Improved cassava varieties helped Nigerian farmers boost production by 10 million tons between 2002 and 2009, which made the country the world’s biggest cassava producer. And a research team led by the International Institute of Tropical Agriculture developed three new varieties of cassava high in vitamin A that could improve the livelihoods of millions of farmers in Africa and help put an end to malnutrition due to vitamin A deficiency on the continent.

“There is no way we can hope to develop Nigeria if the agriculture sector is left at the subsistence level,”

Agricultural subsidies The Central Bank of Nigeria has implemented a sweeping set of financial reforms to develop the real sector, including funding for agriculture. In reviewing the performance of the agriculture sector over the last year, Lamido Sanusi, Governor of the Central Bank of Nigeria, stated: “A total of $22 million was guaranteed to 20,830 farmers under the Agricultural Credit Guarantee Scheme (ACGS) in the third quarter of 2011. This represented an increase of 190.5% and 6.6% over the levels in the preceding quarter and the corresponding quarter of 2010, respectively.

“A sub-sectoral analysis of the loans guaranteed indicated that the food crops sub-sector received the largest share of funds for 17,798 beneficiaries, while the livestock sub-sector got the second largest share for 683 beneficiaries. Also, 333 beneficiaries in the fisheries sub-sector obtained funds as did 433 beneficiaries in the cash crop sub-sector.”

The government has also addressed protracted issues of inadequate credit and high interest rates in agricultural lending through the Commercial Agriculture Credit Scheme (CACS) a $1.3 billion program that makes money available at low interest rates to foreign investor-farmers and other practitioners in the agricultural sector.

The funds are channeled through the Deposit Money Banks (DMBs) in Nigeria to farmers. The loan scheme carries an interest rate not exceeding 9%, with a maturity period not more than seven years. As of February 2011, more than half had been released to finance 109 projects made up mainly of privately owned projects. Also, 19 state governments received up to more than $6 million each for disbursement to farmers’ cooperatives and unions within their constituencies.

Bank sources have reported that less than two years from the establishment of CACS, about 50 percent of the available funds have been taken up by mediumto large-scale farmers. In this scheme, the private 2012 Edition | Doing Business in Nigeria

39

commercial banks are obligated to recover their loans, so the selection of projects is very thorough and the funded projects are achieving the desired expansion in scale, while steady repayment has started on some of the facilities.

Nigeria is the largest producer and consumer of cowpeas, one of the most important food legume crops in the semi-arid tropics. Nigeria harvests 4.5 million hectares annually of cowpeas and accounts for 61% of production in Africa and 58% worldwide.

Nigeria is also the largest producer of soybean in Sub-Saharan Africa. In Nigeria the stems and postprocessed pulp (soybean meal) serve as important sources of animal feed.

The country produces nearly 50 million tons of cassava a year making it the world’s largest producer, but consumes virtually all its produce. Most of the world’s yam (sweet potato) production comes from West Africa and Nigeria alone produces 71% of that, equal to 37 million tons a year.

Cassava inclusion policy In 2012, the Nigerian government plans to introduce policies to encourage the substitution of high quality cassava flour for wheat flour in bread. Bakeries were

Cassava champ

Production ( MMT)

Worldwide cassava production leaders (2010)

40 35 30 25 20 15 10 5 0

e r ia Nig

given 18 months to make the transition period and will enjoy a corporate tax incentive. Also, the government plans to prohibit the importation of cassava flour to further support this program.

“If we fund the sector well, about two million jobs can be created from cassava alone.”

As an added incentive to bakers for composite flour utilization, all equipment for the processing of high quality cassava flour and composite flour blending will enjoy a duty free regime. In the mean time, consultations are ongoing with the stakeholders to ensure a smooth transition.

Furthermore, the government’s agricultural initiatives include extending farmers’ credit and subsidies, supplying tractors, tools and fertilizer at subsidized rates, providing financial support for the production, and distribution of planting seeds and seedlings for Nigeria’s major cash crops, and providing grants to exporters of semi-processed agricultural products.

la m n d ia iq u e zil go na nd sia I Br a done haila . Con A ngo Gha ie t Na b T V zam In D. R Mo Source: FAO

40

George Osodi

Leading producer Nigeria’s agricultural features include food crops, forestry, livestock and fisheries. Food crops account for about 30%, livestock about 5%, forestry and wildlife about 1.3% and fisheries about 1.2%. Its agricultural sector has performed remarkably well, with estimated growth rate in 2010 exceeding 6%, reflecting the good weather conditions that boosted crop production.

Doing Business in Nigeria | 2012 Edition

Storage problems Nigeria’s total land area is 92.4 million hectares. Of this area, 91 million hectares is suitable for cultivation.

Approximately half of this cultivable land is planted with permanent and arable crops, such as rubber,

Agriculture

oil palms, while the rest is covered by forest and habitable areas. Among the states with the most abundant land areas are Niger (7.6 million hectares) and Borno (2.8 million hectares) in the northern part of Nigeria.

Despite its enormous agricultural production and potential, Nigeria spends billions annually on food imports. This is due largely to post-harvest losses which occur partly because of the absence of storage and processing facilities.

At present, the country has 12 silos distributed across the country with a combined storage capacity of 300,000 tons for assorted grains, beans and cassava, while 20 additional silos are being planned to raise the storage capacity to 1.3 million tons.

Foluke Oluwatoyinbo, Provost of the Federal College of Agriculture, Ibadan, explained that post-harvest losses largely arise from multiple sources, namely pests and diseases, natural disasters, careless human actions and inadequate storage and processing.

“People are producing foods but we lose a lot of them because we do not have the facilities to preserve and store them,” Oluwatoyinbo said.

Nigeria’s peculiar weather condition is not kind to food preservation without the aid of refrigerators and other storage and preservation devices, and most foods produced in Nigeria are perishable at harvest.

Adebayo Sodiq, Chairman of the Oyo State chapter of the Association of Cashew Growers and Buyers, says that about 50% of cashew fruits produced in Nigeria annually go to waste due to lack of storage facilities.

“The situation is compounded by the lack of foreign and local investments in storage and processing of the fruit into packages to span all seasons,” Sodiq says.

Susan Phillips, the National Women Leader of Potato Growers Association of Nigeria, recently complained that huge volumes of potatoes are wasted annually leading to enormous loses by growers.

“The federal government should broaden the strategic grains reserve program and the construction of silos by integrating facilities for storage of other ranges of agricultural products including sweet potatoes,” Phillips says.

Success story

Everything can grow in Nigeria Zimbabweans Piet du and Hunter Coetzel have run Shonga Farms, a poultry and cropping farm in the western Nigerian state of Kwara, since 2005.

How is it working for Shonga Farms?

We have achieved a lot with limited resources, limited finance. It also has been very challenging. If we had more support and the banks were willing to assist commercial farming more, we would have been much more ahead than where we are now.

How does the state government assist the farm?

It assisted in securing the land from the local people. It invested some percentage as initial support in 2005. Since then we have been dealing with a consortium of banks. We also use a government ministry which has been helping us in diagnosing disease in the poultry.

Where do you get your seeds, fertilizers and chemicals?

We procure everything from Nigeria. The government does not like genetically modified grain. If we have good seeds, we can tremendously improve on our yields per day. That is the reason why we have come here, to improve agriculture in this country, to improve the yield, to supply better seeds to the nation.

Would you encourage others to invest in Kwara State?

For agriculture, certainly. The state is very hospitable. The land and climate are also very conducive for huge agricultural yield. Other investors will find the state extremely productive and investment rewarding.

Can agriculture boost the Nigerian economy?

Who was the biggest exporter of groundnut in the world before oil discovery? Nigeria. What about cocoa? You can grow bananas, groundnut, pineapples here. You can grow tropical fruits. Yes it can be done.

The federal government should also provide more agricultural storage facilities for use by different categories of farmers across the country, according to Raheem Adeniji, Chairman of the Osun chapter of the All Farmers Association of Nigeria (AFAN). ● For more information Ministry of Agriculture & Water Resources: www.ministryofagric.gov.ng Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture: www.naccima.com 2012 Edition | Doing Business in Nigeria

41

Wanna buy a used power plant?

By the end of 2012, the Nigerian government will have sold off 17 power assets to private investors. PwC experts explain the privatization process.

I

nitiated in 2001, the power reforms in Nigeria included the dissolution of old structures, their replacement with new administrations and regulatory bodies, and the creation of 17 successor companies (SC). These Uyi Akpata, Head of include six generation companies Energy & Utilities (Genco) and 11 distribution companies (Disco). The transmission company will remain in government hands, but will be operated with a private managing partner. These SC companies are in the process of being privatized under the auspices of the Bureau of Public Enterprises (BPE).

The power sector is now considered to be in its “pretransition stage” with the unbundling process of the SCs. This stage is characterized by the injection of power into the Transmission Company of Nigeria (TCN) grid system by the existing generation companies. The TCN, as transmission carrier, then supplies power to the Discos. This pre-transition stage will include the divestiture or concession of Gencos and Discos.

In the medium- to long-term, the market will progressively be opened to competition and eligible customers will be able to enter into contracts with the Gencos or other power suppliers. Towards the end of the transition stage, the governmental bulk trader (NBET) will gradually be phased out as power purchase agreements between the Gencos and Discos replace the need for a middle party. In the final stage of market reform, it is envisioned that the market will open to any consumer, whatever its size, to enter into contracts with suppliers to provide electricity, allowing full retail competition.

Opportunities abound The Nigerian government is optimistic that the reforms in the power sector would replicate the telecoms privatisation. In 2002, Nigeria licensed two mobile operators with a combined installed capacity of 1.3 million lines. By 2011, privatization had exceeded expectations: there were four major operators with about 90 million subscribers between them. By 2009, telecoms contributed 3.66% to Nigeria’s GDP. The Nigerian government targets 40,000 MW by 2020 – about ten times current power output. It is estimated that investments of $3.5 billion per annum for the next ten years will be required in power generating capacity alone. Compared to similar-sized economies, such as Egypt (24,000 MW of capacity), Nigeria trails drastically.

Correspondingly large investments will also have to be made in the other parts of the supply chain (i.e. the fuel-to-power infrastructure and the power transmission and distribution networks).

Investors must be aware of the risks associated with the privatization of the Nigerian power sector. These risks include: shortage of gas supply; poor condition of the transmission infrastructure; outstanding liabilities not assumed by government special purpose bodies; outstanding receivables of Discos; availability of adequate human resources to service the emerging market; metering gaps in both retail and wholesale market; implementing financial reporting standards; and enterprise resource planning issues. ● Further information: Uyi Akpata, Head of Energy & Utilities, uyi.akpata@ng.pwc.com, +234 1 271 1700

Timeline to privatization

March 30 Issue revised legal documents

Submission of comments by bidders April 20

May 11

Bid submission

Distribution/ issuance of final bid documents

July 31

August 28

Doing Business in Nigeria | 2012 Edition

October 2

Financial bid opening

October 23

NCP Finalize September 11 Submission of October 10 preferred bidders’ announcement of technical letter of credit preferred bidder evaluation

Note: Dates refer to distribution dates defined by the BPE. All dates are in 2012.

43

NCP approval of technical evaluation

Source: PwC, BPE

Nigeriaâ&#x20AC;&#x2122;s top 75 2010 2010 Year revenues profits Rank Company Sector founded $M $M 1 Oando Petroleum 1992 2,600 76 2 Flour Mills Nigeria Food 1960 1,287 106 3 Dangote Cement Bldg. mats.

1992 1,262 656 4 First Bank Of Nigeria Banking 1894 1,231 273 5 Nigerian Breweries Beverages 1946 1,156 186 6 United Bank for Africa Banking 1961 1,150 3.7 7 Julius Berger Nigeria Construction 1970 1,069 16 8 Forte Oil Petroleum 1964 1,013** 31** 9 Zenith Bank Banking 1990 883 286 10 Union Bank Nigeria Banking 1917 808 696 11 Ecobank Transnational Banking 1985 771 143 12 Guaranty Trust Bank Banking 1990 750 311 13 Guinness Nigeria Beverages 1950 677 87 14 Conoil Petroleum 1960 640 17 15 Access Bank Banking 1989 566 68 16 Dangote Sugar Refinery Food 2005 560 68 17 Diamond Bank Banking 1990 559 8 18 Nestle Nigeria Cons. goods 1961 516 81 19 Skye Bank Banking 1989 510 62 20 Chevron Oil Nigeria Petroleum 1978 466* 6* 21 PZ Cussons Nigeria Cons. goods 1948 392 31 22 Mobil Oil Nigeria Petroleum 1951 385* 19* 23 First City Monument Bank Banking 1982 385 50 24 Stanbic IBTC Bank Banking 1989 354 56 37 25 Fidelity Bank Nigeria Banking 1987 348 19 26 UAC of Nigeria Food 1931 323 27 Dangote Flour Mills Food 2006 298** 19** Unilever Nigeria 28 Cons. goods 1923 292 25 29 Unity Bank Banking 1987 292 -99 30 Lafarge Cement Wapco Bldg. mats.

1959 273 31 31 Honeywell Flour Mills Food 1985 211 7.5 32 Sterling Bank Banking 1960 210 31 33 Seven-Up Bottling Beverages 1960 193** 10** 34 Starcomms Telecoms 1999 183 -48 35 Cadbury Nigeria Food 1965 162* -8* 118 36 Ashaka Cement Bldg. mats.

1974 112 Chellarams 37 Conglomerate 1977 113 2.6 38 GlaxoSmithKline Consumer Healthcare 1971 106 16 39 Nigeria Bag Manufacturing Packaging 1972 101 2.2 40 Wema Bank Banking 1945 101 7.6 41 Eterna Oil and Gas Petroleum 1989 88 4.6 42 Transcorp Conglomerate 2004 87 19

44

Doing Business in Nigeria | 2012 Edition

CEO/ Managing Director Jubril A Tinubu Emmanuel Ukpabi DVG Edwin Stephen O. Onasanya Nicolas Vervelde Phillips Oduoza Wolfgang Goetsch M.O. Ahme Godwin Emefiele Olufunke Osibodu Arnold Ekpe Olusegun Agbaje Devlin Marc Hainsworth John Vasikaran A. Aig-Imoukhuede Sai Prakash Alex C. Otti Martin Woolnough Kehinde Durosinmi-Etti Musa Yahaya Christos Giannopoulos Adetunji A.Oyebanj Ladipupo Balogun Chris Newson Reginald Ihejiahi Larry E Ettah Alhaji Aliko Dangote Thabo Mabe Falalu Bello Samy Abdelkader F.B. Odunayo Razack Yemi Adeola Sunil Sawhney Maher Qubain Alan Palmer M. Daggash Suresh M. Chellaram Chidi Okoro Peter S. Low Segun Oloketuyi Mahmud Tukur Nicholas Onuoha Okoro

Website oandoplc.com fmnplc.com dangote-group.com firstbanknigeria.com nbplc.com ubagroup.com julius-berger.com forteoilplc.com zenithbank.com unionbankng.com ecobank.com gtbank.com guinness-nigeria.com conoilplc.com accessbankplc com dangote-group.com diamondbank.com nestle.com skyebankng.com chevron.com pzcussonsng.com exxonmobil.com firstcitygroup.com stanbicibtcbank.com fidelitybankplc.com uacnplc.com dangote-group.com unilevernigeria.com unitybankng.com lafargewapco.com honeywellflour.com sterlingbankng.com sevenup.org starcomms.com cadburynigeria.com n.a.

chellaramsplc.com gsk.com bagco-ng.com wemabank.com eternaplc.com transcorpnigeria.com

Company Rankings

companies at a glance Rank Company

2010 Year revenues founded $M 1958 82

2010 profits $M 4

CEO/ Managing Director Arthur Bourekas

Website agleventisplc.com

43

A.G Leventis

Sector Retail

44

IHS Nigeria

Telecoms

2001

69

6.3

William Saad

ihsnigeria.net

45

Bldg. mats.

1962

69

8

Alf Karlsen

sokotocement.com

46

Cement Co. of Northern Nigeria Vitafoam Nigeria

Industrial

1962

69

3

Bamidele O Makanjuola vitafoamng.com

47

Continental Reinsurance

Insurance

1967

63

7.6

Thomas Motamed

continental-re.com

48

Aso Savings and Loans

Fin. services

1995

63

-19

Hassan Musa Usman

asoplc.com

49

Beta Glass

Bldg. mats.

1974

57

7.6

Gerasimos Varvias

n.a.

50

UACN Property Development Real estate

1879

50

14

Hakeem Ogunniran

updcplc.com

51

Aiico Insurance

Insurance

1970

46

0.6

S. D. A. Sobanjo

aiicoplc.com

52

Insurance

1991

31

12

Oluwole (Wole) Oshin

custodianinsurance.com

53

Custodian and Allied Insurance Presco

Agriculture

1991

31

6.3

C. Minguy

presco-plc.com

54

Standard Alliance Ins.

Insurance

1981

30

8.8

Bode Akinboye

sainsuranceng.com

55

National Salt

Food

1992***

25

3.4

Ade Adeniji

n.a.

56

Cornerstone Insurance

Insurance

1991

25

2.5

Livingstone Magorimbo cornerstone.com.ng

57

Ikeja Hotel

Hotel, tourism

2007

23

4.6

Goodie Ibru (Chairman) n.a.

58

Japaul Oil & Maritime

Maritime

1994

22

5.8

Jegede A. Paul

japaulgroup.com

59

Guaranty Trust Assurance

Insurance

2009

21

4

Yetunde Ilori

gtassur.com

60

SCOA Nigeria

Manufacturing

1926

20

1.3

M. F. Boulos

scoaplc.com

61

Chemical and Allied Pdcts

Chemical

1957

19*

2* Omolara Elemide

capplc.com

62

Packaging

1977

19

63

Avon Crowncaps & Containers Staco Insurance

Insurance

2007***

19

4

64

Okomu Oil Palm

Food

1976***

18

0.9

65

Consolidated Hallmark Ins. Insurance

2007

66

Northern Nigeria Flour Mills

67 68

0.1

Sushil R. Ramchandani n.a.

S. O. Oyefeso

stacoplc.com

G. Hefer

n.a.

16*

2* Eddie Efekoha

consolidatedhallmark.com

1971

16

1

Rabiu M. Gwarzo

n.a.

Prestige Assurance

Food, beverages Insurance

1952

15

4

Anand P Mittal

prestigeassuranceplc.com

Lasaco Assurance

Insurance

1979

11

0.7

Olusola O Ladipo-Ajayi

lasacoassurance.com

69

BOC Gases Nigeria

Energy

1959

11

2

Johnson. A. Idowu

bocng.com

70

International Breweries

Beverages

1971

10*

-2*

Otunba Daramola

ib-ng.com

71

Insurance

1969

10**

3** Jacob Erhabor

72

International Energy Insurance Nigerian Aviation Handling

Air services

2006

9

73

Deap Capital Management

Fin. services

2002

8**

74

Universal Insurance

Insurance

1961

6

1.7

John Ethagbe

universalinsuranceplc.com

75

Tourist Co. of Nigeria

Tourism

1964

6

-1.4

Goodie M Ibru (Chairman)

n.a.

2.5

Bates Sarki A. Sule

2** Emmanuel Ugboh

ieinsuranceco.com nahco.com deapcapital.com

*2009, **2008, ***Year listed on Nigerian Stock Exchange

2012 Edition | Doing Business in Nigeria

45

Transfer Pricing

Transfer pricing hits Nigeria New government tax regulations regarding transfer pricing are to be introduced in 2012, with implications for many companies – both multinationals and others.

A

s the Nigerian economy diversifies away from its traditional oil & gas mainstay, tax authorities are awakening to the need for proper transfer pricing (TP) regulations.

The increasing scale of international Taiwo Oyedele, businesses and complexity of Partner Tax and Corporate Advisory cross border trade requires closer Services Unit, PwC attention to transactions between related parties, and ensuring that tax revenues are not improperly allocated to other tax jurisdictions.

“Specific TP regulations are being developed for Nigeria by the Federal Inland Revenue Service (FIRS),” explains Taiwo Oyedele, Partner Tax and Corporate Advisory Services Unita at PwC, “based on the general anti-avoidance provisions in the various tax laws which require related-party transactions to be conducted at arm’s length. The regulations are expected to be issued and become effective in 2012.”

“These new TP policies will have an impact on any related-party transaction”, pursues Taiwo Oyedele, “whether you are a member of a group (local or multinational) involved in any transactions with a related party, and whether a price is charged or not.”

The fields of application are manifold, and include purchases of materials, finished products, procurement of services, inter-company loans or receivables, agreement for use of intellectual property, and more.

“We advise our clients to prepare for these new TP regulations with half a dozen recommendations, which include identification of any related-party transactions, reviewing current TP practices, analyzing the application of these policies, and more,” concludes Taiwo Oyedele.

Any finance director handling Nigerian books should be aware of challenges down the road. “The arm’s length principle may appear simple,” says Oyedele, “but applying it could be a Herculean task.” How do you find information on similar transactions between related parties in an environment where local databases are not available? Even where information

Technical know-how and management services For a large oil multinational with extensive operations in some ECOWAS countries including Nigeria, PwC analyzed crossborder transactions regarding the proper cost allocation and recharge of ongoing technical know-how and management support services provided to the Nigerian subsidiary involving double-digit million dollar tax dispute.

At the core of the analysis was how to allocate costs incurred in Europe across various entities globally and justification of the allocation to Nigeria. In the end, PwC developed a pragmatic approach that helped resolve the company’s tax burden, whilst upholding the client’s strict governance standards. on other industry players is available, there is no guarantee that the conditions and circumstances of the transactions will be sufficiently similar.

To illustrate some of the pitfalls, PwC uses two examples. The first has to do with disparities between customs import values and TP documentation.

“There has been a lingering and prevalent issue, particularly in frontier markets, where custom duties are handled by separate tax authorities,” explains Oyedele. “However, there are instances where reliance has been placed by the courts on customs valuations. In our experience customs do not give refunds due to a TP adjustment done by the income tax authorities.” The second example concerns upstream oil companies needing to document their TP policies beforehand. In the case of discrepancies with respect to benchmarking by government regulators, such written policies will be required.

Furthermore, the existence of a global TP policy may not necessarily eliminate the requirement for additional work as there may be Nigeria-specific issues that have to be addressed and which create a need to localise the global policy. ● For further information: Taiwo Oyedele, Partner Tax Director, taiwo.oyedele@ng.pwc.com, +234 1 271 1700

2012 Edition | Doing Business in Nigeria

46

Rolling along Relying on a greater dose of private sector involvement (and investment), Nigeria is taking a multi-modal approach to its transport needs.

Road, rail, water and air are all part of the solution.

R

oad congestion, long delays to unload container ships, lack of public interest in rail transport, long urban commutes – the list of headaches in Nigeria infrastructure was breath-taking in the late 90s. A policy turnaround occurred in 2000 when the National Council on Privatization recommended a greater dose of private sector involvement in transport construction and maintenance. In 2008, the Infrastructure Concession and Regulatory Commission was established, to help foster such public-private cooperations, namely public-private partnerships (PPP). In early 2010 a complete intermodal study was commissioned, to be completed by the Nigerian Institute for Transport Technology.

In 2009, the federal government voted a seven-fold jump in allocations, and has been allocating about $700 to $800 million per annum since then.

In addition to national and private funding, Nigeria is also relying on World Bank and African Development Bank funding for certain projects, namely pan-African projects such as coastal roads linking West African ECOWAS countries, for example Cameroon and Benin.

With almost 200,000 kilometers of roadways, Nigeria has the most extensive network of West Africa. Of this

Money for travel Evolution of Nigerian Transport Ministry Budget 900 800

$ Millions

600 500 400 300 200 100 2007

2008

2009

2010

Source: Federal Government Nigeria

48

total, only 67% of paved roads are considered in good or fair condition, according to the World Bank. Some expressways have been the recent focus of PPP investments, where the heavy capital expenditures are not borne by the federal government, but by private financiers – at least in part.

Railways are a sad story. Nigeria used to be the rail pride of Africa. Now it has a small and neglected rail network, consisting of lines totalling 3,800 kilometers, and carrying but 2.5 million passengers in 2010 – less than the daily volume on the London Underground. Yet the government has ambitious plans, and has already lined up assistance from the Chinese infrastructure company CCECC and UK company Costain for asset improvements (railbeds, tracks, signalling, etc.), and from General Electric for rolling stock (locomotives).

The goal is to have rail take on greater importance for inter-city passenger traffic, which is currently captured by buses and airlines. Freight transport is also an objective, although here there is competition from… the Nigerian waterways.

With 900 kilometers of coastline and 3,000 kilometers of inland waterways, Nigeria can also use its sea lanes for transport, thus decongesting roads, and potentially boosting heavy transport-using industries such as mining or the oil and gas sector. For its waterways, the Nigerian government is carrying out dredging programs, and extensive port rehabilitation or improvements.

700

0

After years of neglect, Nigeria has started rebuilding its infrastructure.

Doing Business in Nigeria | 2012 Edition

Here the Nigerian Ports Authority is in charge.

Established in 1984, NPA provides an integrated approach to port administration, with a strong focus on

Infrastructure

© 2011 Peter Dewberry

both passenger and cargo business. The number of passengers has grown consistently, and reached 10.2 million in 2010 (for Lagos and Abuja airports), but is still less than half of South Africa’s level (26.5 million for Johannesburg and Cape Town).

the country’s seven most important ports: Lagos (two ports), Port Harcourt, Onne, Warri, Calabar and Roro.

Aviation is the transport mode that enjoyed the first fruits of privatization in Nigeria. Nigeria’s 70-odd airports enjoy custom from about thirty airlines, for

Another area of focus is urban transport projects, for example with the Lagos Metropolitan Transport Authority, serving the 25 million inhabitants of the sprawling metropolis on the lagoon. With background funding of $150 million from the World Bank, the project aims to develop a rapid bus transit system. This solution offers the advantage of fast implementation with lower capital expenditure when compared to underground rail systems. The project may also involve a light-rail (tramway) component.

There is no lack of construction contractors bidding for projects at all levels. Among the bigger players, one should mention Julius Berger, Solel Boneh/RCC, Caesar Construction, Setraco, Dantata Construction, SCC Construction, Cappa and d’Alberto, Strabag, Mother Cat Nigeria Ltd., and Hi-Tech-Lekki Expressway corridor. ●

World Bank study

If only we had better infrastructure…

The World Bank estimates that better infrastructure (including power) could have boosted Nigerian GDP growth by an additional 3.9% per year. Extracts from the full report.

Infrastructure made a net contribution of around 1 percentage point to Nigeria’s improved per capita growth performance in recent years. This growth came almost exclusively from the ICT revolution, while Nigeria’s power sector held the per capita growth rate back by 0.13 percentage points over the same period. Raising the country’s infrastructure endowment to that of the region’s middle-income countries could boost annual growth by around 4 percentage points.

In recent years, Nigeria has conducted several important infrastructure sector reforms. The ports sector has been converted to a landlord model, and terminal concessions now attract private investment on a scale unprecedented for Africa. A burgeoning domestic air transport sector has emerged, with strong private carriers that have rapidly attained regional significance.

But worrisome challenges persist in a number of areas, and loom the largest in the power sector. Addressing Nigeria’s infrastructure challenges will require sustained expenditure of almost $14.2 billion per year over the next decade, or about 12% of GDP. (As a point of comparison, China spent about 15% of GDP on just infrastructure investment in the mid-2000s.)

About $10.5 billion is needed for federal infrastructure alone,

most of it for capital spending and power.

Nigeria already spends $5.9 billion per year on federal infrastructure, equivalent to about 5% of GDP. Existing spending patterns are heavily skewed toward investment, with little provision for operations and maintenance.

With its abundant oil revenues, Nigeria is relatively well placed to raise additional public finance for infrastructure. more could also be done to leverage domestic capital markets, and there is scope to build on the comparative success of public-private partnerships. Nigeria has also attracted much interest from nonOECD financiers, notably China.

Raising Nigeria’s infrastructure to the level of the African leader, Mauritius, would boost annual per capita growth rates by 4 percentage points, according to simulations. About half of this potential impact is associated with improvements in the power sector, which would contribute as much as 2 percentage points to the per capita growth rate.

World Bank Policy Working Paper 5686 (June 2011) Nigeria’s Infrastructure: A Continental Perspective

By Vivien Foster and Nataliya Pushak

2012 Edition | Doing Business in Nigeria

49

Exceptional ICT growth Nigeria’s Information and Communications Technology (ICT) sector looks destined for even more exceptional growth despite some challenges.

T

oday Nigeria’s ICT sector is the fastest and most robust sector of the country’s economy, contributing more than the manufacturing, banking and solid minerals sectors combined. But it wasn’t always this way.

The first telegraphic submarine cable was laid by the British firm Cable & Wireless in 1886. By the time political independence was declared from Britain in 1960, Nigeria still had just 18,724 fixed telephone lines. Between 1960 and 2000, the active subscriber base grew to 400,000 fixed lines for a population estimated at 120 million.

The most eventful era for the ICT sector was from 2000 and 2011. The underlining factors include a strong desire on the part of a democratic government to liberalize the sector, and the subsequent creation in 1992 of a strong independent regulatory body, the Nigerian Communications Commission (NCC), staffed by professionals knowledgeable about global trends in telecommunications evolution. The commission explored the ICT sector business potentials and how to translate them for services delivery within Nigeria.

Revolutionary years The period from 2000 until today has been described as Nigeria’s telecommunication revolution, given the quantum growth in the diverse fields of telecommunications services delivery and regulatory advancements. The National Telecommunications Policy enables the telecom regulator to reinvigorate the regulatory framework in a way that boosted the confidence of investors.

The result was the competition which followed the major auctioning of digital mobile licenses in Nigeria in 2001. Companies who were capable of rolling out basic services attracted millions of Nigerians who had hitherto been starved of basic telecommunications 50

Doing Business in Nigeria | 2012 Edition

Nigeria is undergoing a telecommunications revolution.

Main contributor ICT contributes more to the Nigerian economy than any other service sector (2010).

Hotels and restaurant 3%

ICT 25%

Utilities 17%

Others 10% Real estate and business services 10% Transport 15%

Finance and insurance 20%

Source: US Embassy Nigeria

services. With the telecom operators rolling out services in an environment where individuals and corporate organizations were yearning for services, the nation’s active subscription and landline telephones in use (teledensity) rose dramatically.

With only about 400,000 lines in 2001, the number of active lines by end of January 2011 stood at 89 million, resulting in teledensity of 64.16. Today, according to the NCC, the mobile subscriber base

ICT

Economic impact Nigeria is ranked the largest and fastest-growing ICT market in Africa and among the ten fastest telecom growth markets in the world. This is as a result of its robustness to return on investments.

According to the NCC, private sector investment including direct foreign investment in Nigeria’s telecommunications industry grew from about $50 million in 1999 to more than $18 billion by end of 2009. Moreover nearly $2 billion was contributed to the coffers of the federal government within that time frame through frequency spectrum sales, enabling the government to plough back revenues earned from the sector for the provision of development infrastructure.

in Nigeria is more than 95 million. GSM accounts for 92% of Nigeria’s telecommunications market, while CDMA has a 7% share and fixed line services account for just 1%.

Nigeria’s telecommunications sector drives the ICT industry. The International Telecommunications Union (ITU) stated in the Internet World Stats in March 2011 that Nigeria had 44 million internet users, the most of any African country. Its internet penetration rate per 100 people grew 17% in 2008 and 23% in 2009. But this increase in internet use is mainly through mobile phones.

Success Story

Who wouldn’t come to Nigeria?

Huawei is a global information and communications technology company headquartered in Shenzhen, China and has been in Nigeria for more than a decade. It is the largest China-based networking and telecommunications equipment supplier and the second-largest supplier of mobile telecommunications infrastructure equipment in the world.

How long have you been in the Nigerian market?

Huawei was established in Nigeria in 1999 and more than 50% of our employees are local. Now we have a leading position in the Nigerian telecommunications market. We work with the major GSM operators in Nigeria including MTN, Etisalat, Airtel, Globacom, Visafone and Starcomms. In November 2004 we introduced Next Generation telecommunications technology to NIgeria. In 2004, we migrated Starcomms’ IN and SMS system, which enabled Starcomms to grow its subscriber base from less than 80, 000 to 200,000, an increase of more than 200%.

Why did you come to Nigeria?

Who wouldn’t come to Nigeria? The market is here. The environment is conducive, the population is huge, which counts for every investor. Besides, we have established end-to-end advantages in telecom networks, devices and cloud computing.

We are committed to creating maximum value for telecom operators, enterprises and consumers by providing competitive solutions and services. Our products and solutions have been deployed in over 140 countries, serving more than one third of the world’s population

What has been you experience in Nigeria so far?

In every market, there must be issues but when you look at your bottom line and see that your business is moving in the right direction with expected return on investment, the challenges are always overlooked. In fact coming to Nigeria was our biggest move in West Africa. To demonstrate our long-term commitment to Nigeria, in 2006 we invested $10 million to build a training center for employees. Furthermore, we have cooperated with several universities in Nigeria to provide training for their teachers.

Five years down the line, what are your expansion and marketing plans?

We intend to be one of the top three handset vendors worldwide by 2015. We will embark on a marketing campaign to create the brand awareness that is needed to create the buzz around the brand.

Benefiting from the rising popularity of Android, we will compete with other OEMs who use the operating system. Like I said, Huawei’s push into the Nigerian open market marks the company’s biggest step into the world of mobile devices in West Africa.

2012 Edition | Doing Business in Nigeria

51

Nigeria’s mobile operators Company

Subscribers 2011 (millions)

Market share

CEO

Website

MTN Nigeria Communications

41

48%

R.S. Dabengwa

www.mtnonline.com

Globacom Limited

19

23%

Mohammed Jameel

www.gloworld.com

Celtel Nigeria Limited (Airtel)

16

19%

Manoj Kohli

www.africa.airtel.com

EMTS Limited (Etisalat)

8

9%

Steve Evans

www.etisalat.ae

MTEL Limited (NITEL)

0.26

0.30%

n.a.

n.a.

Source: Nigerian Communications Commission

52

Doing Business in Nigeria | 2012 Edition

Explosive growth Number of subscribers for fixed and mobile telephony 100 90 80 70 60 50 40 30 20 10

10

09

20

08

20

07

20

06

20

05

20

04

20

03

20

02

20

01

0

20

Other Sectors Growth in the ICT sector has had significant impact in the other sectors of the economy, especially the financial sector. In commercial banking services, the quantity of transactions, mainly through telecommunications services, has increased.

Electronic banking facilities such as ATM services, online financial transactions, international credit and

But there is imbalance in the operational strengths of the two genre of operators. Statistics released recently by the NCC put market shares of the GSM operators at 91% while that of the CDMA is 9%. It also said that 99% of all mobile users in Nigeria rely on the GSM platform.

00

The fact sheet shows that the ICT sector contributed 8.2% to the 2010 GDP and that ICT investment spiked 700% in 2001 and has received double-digit growth every year since. In 2009, investment rose by 31% to $18 billion.

There were also about eight Code Division Multiple Access (CDMA) operators who played major roles in the development of the sector, although only about three of them (Starcomms, Visafone and MultiLinks) are operating today.

20

Meanwhile, estimates by Pyramid Research in a 2010 report put the annual revenue from mobile services between 2% and 7% of all African countries’ nominal GDP, while in Nigeria the ratio is close to 4%. The Nigeria telecommunications fact sheet released by the United States Embassy in Nigeria in October 2011 states that “the ICT sector is the fastest and most robust sector of the Nigerian economy, contributing more than the manufacturing, banking and solid minerals sectors combined.”

Major players Among the GSM players, MTN Nigeria has the largest share of the market with 48%, followed by Globacom which has 23% of the market. Airtel which purchased Zain in 2010 also has 19% market share while Etisalat controls 9%.

20

The impact of ICT on economic growth has been impressive. The sector now contributes significantly to GDP, which was hitherto dominated by the oil sector. The percentage share of GDP from ICT rose from 0.06% in 1999 to 2.39% by 2007. However, it moved up to 2.9% in 2008 and 3.66% in 2009. By 2010, ICT had contributed 8.2% to the nation’s GDP.

debit card facilities, airline ticketing and reservations, are some of the numerous ways that the industry has aided the growth and security of the financial sector.

(Millions)

And although there are four major computer OEMs in Nigeria (Zinox, Omatek, Beta and Brian computers) only the first two are in active production and they do not have the capacity to service even a quarter of the Nigerian market. As a result of these two facts there is no clear-cut distinction between the telecommunication and information technology sectors in Nigeria.

Source: Nigerian Communications Commission

ICT

Closer look

Net addicts

Nigeria has more internet users than any other African country (2011) Nigeria

ICT institutional bodies and activities The Nigerian Communications Commission (NCC), regulates the telecommunications industry while National Information Technology Development Agency (NITDA), champions growth in the IT sector.

45

Egypt

21.7

Morocco

15.7

Kenya

The National Office for Technology Acquisition and Promotion (NOTAP) is a parastatal of the federal Ministry of Science and Technology that carries out the evaluation and registration of technology transfer agreements; promotion of intellectual property; technology advisory and support services; commercialization of R&D results; research industry linkage; production of compendium management information system; publication of project profiles on R&D results.

10.5

South Africa

6.8

Tanzania

4.9

Algeria

4.7

Uganda

4.2

Sudan

4.2

Tunisia

3.9 0

10

20 30 Millions of users

40

50

NCC’s December 2009 to July 2010 subscriber data said active mobile CDMA lines which stood at 7.7 million in January 2010, dropped to 6.6 million by July 2010. This means that 1.08 million active lines had become inactive.

Investment opportunities There are still huge opportunities for potential investors in the sector, particularly in the area of broadband and data services provisions. Two Nigerian companies, Main One and Globacom, landed two private undersea cable projects which increased penetration while a third, the West African Cable System (WACS), is awaited.

However, a major problem seems to be how to take the broadband services to rural areas where most Nigerians live. This is an area potential investors may also look at.

The sector is also challenged by fragmented legislation in spite of its convergent nature. The president of Nigerian Digital Bridge Institute (DBI), Dr Raymond Akwule, who chairs a 9-man committee to harmonize Nigeria’s ICT policies, lamented that “presently in Nigeria, policies guiding the ICT sector are treated under various legislation. These laws are however not comprehensive enough to deal with the convergence of all relevant ICT subsectors and other ICT related issues in the current digital world.”

Akwule explained that there was lack of a comprehensive and harmonized ICT policy in the country, inadequate infrastructure, lack of legal and regulatory framework, absence of Universal Access Service, lack of security and local content. ●

Galaxy Backbone was established in 2006 to streamline the increasing proliferation of disparate IT networks and assets across federal government MDAs and to be the leading enabler of digital inclusion in Nigeria and Africa.

Nigerian Communications Satellite Company Limited, (NIGCOMSAT): Established in 2006 with its primary function to manage and exploit the commercial viability of the Nigerian Communication Satellite for the social economic benefit of the nation.

GSM operators: Other major contributors to the growth of the sector include the five mobile GSM operators, licensed in 2001 among which only four (Globacom, MTN, Airtel and Etisalat) are operational. They provide most of the needed growth infrastructure and build relevant backbones that aide the surge in penetration and growth.

In addition, two major Nigerian companies, MainOne Cable and Globacom landed two undersea cable projects in the country to increase broadband penetration and ease the strain in mobile telephony. A third, the West African Cable System, (WACS) is also expected soon.

For more information: Nigerian Communications Commission: www.ncc.gov.ng National Information Technology Development Agency: www.nitda.gov.ng Galaxy Backbone: www.galaxybackbone.com National Office for Technology Acquisition and Promotion: www.notap.gov.ng Nigerian Communications Satellite Company: www.nigcomsat.com

By Prince Osuagwu, ICT journalist, Vanguard newspaper, Lagos.

2012 Edition | Doing Business in Nigeria

53

Solid investments Well-informed real estate investors can reap handsome profits from a good deal. Returns of 20%-30% are not uncommon.

T

he Nigerian real estate sector is an emerging market with an estimated value of about $5 billion.

It is a continually growing market with an estimated growth rate of 10% to 15% per annum.

Through its housing policy and particularly through the Federal Mortgage Bank of Nigeria (FMBN), the federal government has indicated its intention to ensure a sustained growth of the market. This is done through policies aimed at encouraging the granting of mortgages to home seekers and property developers via the various lending windows under the National Housing Fund (NHF) loans scheme.

As a result of the dynamic oil-driven and deregulated economy, and Nigeria’s huge population, virtually all major commercial organizations are present or represented in Nigeria. Indeed, the telecommunications and petroleum industries account for about 50% of the number of expatriates in Nigeria.

Consequently, Nigeria is a major investment destination with real estate being a top investment attraction. There are within Nigeria many real estate investment destinations. Lagos, Abuja and Port Harcourt are considered the primary destinations, but cities such as Calabar, Kano and Enugu are also attractive.

Lagos With an estimated population of 17 million inhabitants, Lagos is a commercial city hosting the head offices of major organizations and site of the nation’s sea ports and airports. The highest land values are found in the Ikoyi, Victoria Island and the Lekki Peninsula neighborhoods. These are the choice residential and commercial areas for embassies and diplomats, the expatriate community and top executives of major companies.

Land values here start at $750 per square meter for 54

Doing Business in Nigeria | 2012 Edition

Nigeria’s improving economy has created Western style residential areas.

undeveloped land. Rental values range from $40,000 to over $100,000 annually, expected to be paid between two and five years in advance of occupation.

Sales prices for apartments range from $400,000 to more than $1.5 million. Most of these developments are sold at design stage in view of the shortage of and high demand for accommodation.

Neighborhoods such as Victoria Garden City, Atlantic Beach Estate and Goshen Estate are gated estates with detached and semi-detached houses which retail from $250,000 to $400,000. Annual rents are in the range of $25,000 to $50,000.

Port Harcourt Port Harcourt is known as the oil city of Nigeria. It houses the offices of some of the world’s biggest oil companies as well as oil servicing companies.

With a huge expatriate population, rents range from $25,000 to more than $50,000 for apartments in a neighborhood known as the G.R.A (Government Reserved Area). Gated communities are also popular. Market surveys show a huge gap in the

Hot property Land values of selected cities in Nigeria Rank City

Cost $/m2

1

Ikoyi (Lagos)

1,600

2

Victoria Island (Lagos)

1,300

3

Maitama (Abuja)

1,300

4

Port Harcourt (Old G.R.A)

445

5

Bodija – Ibadan (north of Lagos)

127

Note: $ values based on 155 Naira-per-$ exchange rate.

Real Estate

the golf clubs nationwide is still under 10,000. With a potential membership population of 2 million golfers, this market begs for investment.

Furthermore, Nigeria has no theme park in the mode of Disneyland or SeaWorld. With its huge population, Nigeria would be a profitable destination for any investor in this regard.

Land use requirements To facilitate investment in real estate, the government has eased the acquisition of and transfer of land. All land is vested in the federal and state governments by virtue of the Land Use Act of 1979. While this has its own problems, it nevertheless ensures that land is available for developmental projects. supply of accommodation presenting investors with excellent opportunities.

Commercial real estate Commercial real estate has made major strides especially in Lagos in recent years. The Palms/ Shoprite Malls began in Lekki suburb of Lagos, and are now at Surulere neighborhood suburb and the nearby city of Ikeja. Others with a similar concept are the City Mall (Lagos Island), Silverbird Galeria (Victoria Island) and Ceddi Plaza (Abuja).

The Palms is believed to the first real European/ North American style mall in the country. Rents at the Palms in Lekki start from $370 to $470 per square meter per annum.

In terms of office space, the most popular destinations in Lagos remain the Island and Ikoyi. The few purposebuilt commercial office blocks available are in high demand with annual rents from $200 to $1,000 per square meter and more.

Tourism/recreation real estate Tourism, once neglected, has been put on the front burner by the federal and state governments as well as private organizations. Major international hotel chains are present in Nigeria, including Hilton, Sheraton, Sofitel and Protea, but there are still less than 5,000 hotel rooms of international standard nationwide. Tourism figures are projected to rise so clearly there is potential for development in this industry.

In terms of recreational real estate, Nigeria has numerous golf courses, but only a few of them are to international standards. Total membership of all

Several things to be cautious of are the high cost of registering title in the name of the purchaser. Many states charge what is known as a consent fee. In Lagos State for example, this fee is usually 15% of the property value. Processing a title change can take from three months in Lagos to as much five years in other states due to bureaucracy.

In addition, a thorough due diligence of facilities provided in a property should be undertaken before payment is made. Ensure that the vendor has approved building plans, tax clearance certificates, etc. Also check that the property does not flood during the rainy season, which is a common problem in Lagos Island and other parts of Nigeria.

The shortage of available properties and consequent rise in values makes property acquisition in Nigeria a viable investment option. Property capital values are known to rise as much as 15% to 20% per annum. Moreover the market remains firm despite the economic crisis and should remain firm even in the foreseeable future as there is no plan either by the government or private sector to drastically tackle the housing shortfall.

Several government agencies and private sector players are available to guide potential investors through the investment maze.â&#x20AC;&#x201A; â&#x2014;?

By Michael Simire, Deputy Editor, Sunday Independent

For more information: The Federal Mortgage Bank of Nigeria: www.fmbnigeria.org International Centre for Nigerian Law: www.nigeria-law.org

2012 Edition |â&#x20AC;&#x201A; Doing Business in Nigeria

55

Insurance opens up After a drastic clean-up in 2005, Nigerian insurance companies are poised to cash in on the country’s untapped insurance market potential. Foreign assistance welcome.

The insurance sector is attracting a lot of foreign investors.

T

here could not be a better time for foreign investors to come into the Nigerian insurance market than now. For the first time in the history of the sector, operators are seeing the need to embrace voluntary mergers and acquisitions that are not driven by regulation.

“International investors have been making enquires that they want to come into the Nigerian market,” says Insurance Commissioner Fola Daniel. “The raw material for insurance to thrive really is the population which we have in abundance, so Nigeria is a good insurance destination.”

Having evolved over the years as agents of business and social stabilization after the recapitalization mandate in 2007, the sector is beginning to respond to the dynamics of economic development and is demonstrating support for the government’s drive to sustain growth of the national economy.

In 2005, the country’s 104 insurance companies, many undercapitalized, were given until February 2007 to raise their capitalization thresholds by more than 1,000%. This led to a spate of mergers

and acquisitions but when the dust had settled, 60 stronger companies emerged.

Under the recapitalization directive, life insurance companies were requirements were raised from about $1 million to $13 million; general insurance companies, from $1.3 million to $19 million; and reinsurance, from $3.2 million to $63 million. As a result, the industry capital base exceeded $1.3 billion from a pre-consolidation level of $190 million.

Potentially, Nigeria has the biggest insurance market in Africa, but weaknesses in the industry mean that most of the large businesses are underwritten by foreign companies.

“We have an industry capital base in excess of $3 billion while GPI is about $13 million, this is gross under performance,” Daniel says. “It is time for the industry to run and run we are going to do.”

Between 2000 and 2009, the industry had an average growth rate of almost 24%. Life insurance grew at 21%, and non-life at 18%. In 2009, the industry’s

Fragmented and small Nigerian insurance market leaders Market share

Gross Premium 2009 ($M)

Leadway Assurance

15.0%

Industrial & General Insurance

5.3%

Guaranty Trust Assurance

Company

Top manager

Website

$171

n.a.

www.leadway.com

$60

Remi Olowude (Exec. VC)

www.iginigeria.com

4.1%

$46

Kunle Ahmed (Gen. Man.)

www.gtassur.com

Niger Insurance

4.0%

$46

Justus Clinton Uranta (CEO)

www.nigerinsurance.com

Custodian & Allied Insurance

3.0%

$34

Wole Oshin (Man. Dir.)

www.custodianinsurance.com Source: Nigerian Insurers Association

56

Doing Business in Nigeria | 2012 Edition

Insurance

Success story

Opportunity taken

George Osodi

South Africa-based Sanlam Insurance Group entered the Nigerian insurance sector in 2010 via a partnership with FBN Assurance, a subsidiary of Nigeria’s First Bank. Sanlam operates in 10 African countries.

growth peaked with a recorded premium of $1 billion (N179 billion) against $952 million (N150 billion) in 2008, a 16% increase.

The new face of insurance Regulatory induced changes are expected to boost the insurance sector’s activities going forward.

One such change is the Nigerian Oil and Gas Content Act of 2010. This means that no insurance risk in the petroleum industry can be placed overseas without the approval of National Insurance Commission (NAICOM). The essence is to ensure that Nigerian local capacity would be fully exhausted.

“The Local Content Act is a multi-million dollar business and insurance operators must position themselves for it,” says Olusola Ladipo-Ajayi, Chairman of the Nigerian Insurers Association (NIA).

In August 2010, the Nigerian government called for the adoption of the International Financial Reporting Standards (IFRS) by December 2012.

Similarly, the Central Bank of Nigeria (CBN) has directed banks to divest from all non-banking subsidiaries by May 2012, for which banks are expected to sell about 50 subsidiaries with assets worth $1.2 billion.

So far, two banks have sold off their stake to some foreign investors. Guaranty Trust Bank (GTBank) sold its 68% equity in GT Assurance to Assur Africa Holding, while Diamond Bank sold its 96% stake in Adic Insurance to NSIA Participation, an Ivorian firm.

Other recent actions are expected to lead to the emergence of bigger and stronger players, enhance

What motivated Sanlam to come to Nigeria?

Population is a big tick in the box.

But it’s not just that. The insurance market here has not kept pace with Andrew Greenwood, COO many African markets. So it was an Sanlam Insurance Group opportunity to take advantage of the insurance sector here which has been completely missed over the last several decades.

What challenges have you faced?

We expected it would be easier to enter the market carrying two prominent brands – First Bank, which is well known here, and Sanlam, which is well known across the rest of Africa. We expected the First Bank brand to help us a lot but we found that we have to stand on our own merits. And we have done that.

What is the competition like?

Everybody is chasing group life business. We compete in that field but we aren’t competing on price; we compete on service, delivery and speed of turn-around. Other areas of business haven’t been touched yet such as having agents go out to sell individual products. We want to be a big part of that.

Would you recommend Nigeria?

There is an enormous opportunity for people to do business here provided they do their homework, know where they are penetrating and have a business partner they trust. international competitiveness of local operators and attract foreign direct investment.

Daniel explains that the restructuring and changes are not meant to weaken the insurance industry but to boost its development and predicts the industry will soon measure up to its peers continentally and globally. ●

By Rosemary Onuoha, Insurance Correspondent, Vanguard newspaper, Lagos For more information: National Insurance Commission (NAICOM): www.naicom.gov.ng Nigerian Insurers Association (NIA): www.nigeriainsurers.org

2012 Edition | Doing Business in Nigeria

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Shopping finds its stride “N

igerian consumers fall broadly into two categories,” explains Dr. Uchenna Uzo, marketing lecturer at Lagos Business School. “Pricesensitive customers represent approximately 70% of the population, while quality-sensitive are about 30%.

Why? About 71.5% of the population lives below the poverty line, and cost tends to be their primary concern.”

Richer, more quality-sensitive consumers tend to be more concerned about issues such as the durability of products and the convenience of purchasing; they usually seek information from experts before making buying decisions, especially in the retail sector. Price is still a consideration for them, but not as much as with the first group.

Informal vs. organized retail Consumer behavior is marked by the strength of the informal (as opposed to the organized) market. Customers rely on both organized and informal markets, particularly for goods such as electronics, textiles, car repair services. Therefore the segmentation between organized and informal is more relevant than the rural/urban divide.

“Generally speaking, rural consumers are less educated, have lower levels of disposable income, tend to buy to meet short-term needs, have limited product exposure and knowledge, display strong bargaining skills, and overall have fewer needs due to subsistence-level living,” explains Dr. Uzo. “On the other hand, urban consumers are better educated, have a larger variety of needs, are generally more sophisticated, and are more likely to

Formality on the rise Synopsis of the organized retail market Informal Open market

60

Street hawkers

Car repairs

Doing Business in Nigeria | 2012 Edition

Nigerian consumers are a mix of sophisticated urban shoppers and rural folk.

demand improvements in products or delivery from suppliers.”

The spending priorities reflect this hierarchy: basic needs (food, health) come first, followed by items such as education, utilities, travel, leisure, etc.

For Dr. Uzo other factors that shape consumer behavior in Nigeria include age (and its corollary marital status), family size, profession (also parttime vs. full-time employment), certain seasonal and festive periods (retailers usually move higher volumes at these times and price accordingly), and finally religion.

Because of the large segment of low-income consumers and their price-sensitivity, companies have introduced small sachets of food products, and low denominations of mobile phone credit, thus pulling consumers out of the informal market into the lower end of organized retail.

Some unusual traits Bargaining is a big part of the consumer experience.

Tactics tend to vary along ethnic lines and the value of the product being purchased. Bargaining is Formal commonplace in the entire informal sector, but is more limited in the organized Mobile Household segments – even Nigerians telephony goods love a discount, just like Source: Lagos Business School (Euromonitor 2011) any one else!

Consumer Behavior

What about technology?

Like many emerging markets, Nigeria has a two-stroke technology engine, as explains Dr. Yinka David-West, lecturer in management information systems at the Lagos Business School.

George Osodi

“Technology is predominantly used by the youth (those aged 18-35), mainly for social purposes and content sharing (Facebook, Twitter, news outlets, etc),” Dr. David-West says. “Simultaneously, there is a distrust of technology, especially among the elderly and with regard to financial transactions, where new technologies are not considered secure enough.”

Ethno-religious sensitivities are another important marketing factor to be taken into account. Obviously sales of alcohol and cigarettes are geographically biased, since consumers can be wary of cultural taboos. On the whole, pragmatism drives consumer behavior more than ethnicity or religion.

“Nigerians are definitely a fun-loving people,” says Dr. Uzo, “but their leisure activities may seem strange to an American or European. Our weekends often focus on family-driven events, such as birthdays or celebrations. Just about any occasion is good for a celebration: weddings, births, anniversaries, even work-related festivities. Bakeries produce elaborate cakes with colorful frosting and lettering.”

Sports and fitness is not yet part of Nigerian routine, with joggers and cyclists receiving amused stares.

“Sightseeing or window-shopping in commercial malls is also gaining traction,” concludes Dr. Uzo.

Pleasantly chaotic Informal and structured retail co-exist Segments

Approx. market share

Laments Dr. David-West: “Among the obstacles confronting further technological spread in Nigeria, I think language issues, lack of local content production and lack of local manufacturing are key blocks.”

Given the large number of non-English native speakers, content in Yoruba, Hausa or other languages is spreading. Also facilitating the spread of computing is the rise of mobile internet, which offers good possibilities for rural adaptation (Internet kiosks rather than Internet cafes, which closed down progressively).

“You must realize that mobile platforms for telephony (which are multi-purpose, easy to use, accessible) are offering strong competition to computing,” explains Dr. David-West.

Long-term technology prospects Financial services show good potential, namely via the more trusted mobile platforms. Banking is an area of strong growth. Other prospects come from enhanced localization.

“Once further adaptation or development for the local environment is made, then we’ll be able to figure out the actual value of the Nigerian internet economy and its sustainability,” says Dr. David-West. “As we mature, further cultural implications will appear.”

Approx Main players no. outlets

Hypermarkets

10%

50

Supermarkets

20%

10,000

Open market/small grocery stores

70%

280,000

Shoprite Holdings Ltd, Artee Industries Ltd, Big Treat Plc Mobil Mart, B & G supermarket Independents, unstructured Source: Lagos Business School

Beyond technology, according to Dr. Uzo, sectors marked for growth as societal trends develop include telecoms (spurred

by Nigerians’ desire to do business and communicate), entertainment (movies, live performances, music), organized retail (e.g. Shoprite, Massmart chains of modern hyper- or supermarkets), and hospitality.

The growth is clearly visible already, especially in urban centers. ● 2012 Edition | Doing Business in Nigeria

61

Beverages

Good times ahead Nigeria’s alcoholic beverage industry is set to grow as the economy improves.

B

rewing is considered one of the fastest growing industries in Nigeria and beer is the most popular of all alcoholic beverages consumed, accounting for approximately 92% of all alcoholic drinks sold in 2010. Beer consumption has continued to increase due to brand loyalty, aspiration, indulgence and as a pick-me-up as well as the youthful population.

Beer prices have increased up to 11% due to increasing cost of production especially public electricity supply, and the general lull in the Nigerian financial sector due to ongoing economic reforms. The consequent impact on consumer disposable income has led beer drinkers to seek cheaper brands. Despite the increased prices the beer market grew overall by 8% in 2010 with all price segments achieving growth with the exception of premium which has been declining for a number of years.

The mainstream segment continues to dominate achieving volume growth of 9%. All brands within the segment experienced growth with Castle Milk Stout and Grand from SABMIller more than doubling their 2009 volume in 2010. Most brands in the mainstream segment are predominantly sold in cans. The ban on imported beer has had a positive effect on local manufacturing with new brands and players entering the market.

The market has been dominated by two major players namely Nigeria Breweries Plc (Heineken) and Guinness Nigeria Plc (Diageo) for decades. However, SABMiller’s entry into the market in 2009 indicated an interest by other international brewers in the market.

SABMiller is consciously targeting the mainstream segment of a market that had been traditionally dominated by Diageo and Heineken.

The key market driver for the beer industry is the large and growing population and per capita consumption still below 10l. The main limiting factors to beer growth are increasing awareness of health 62

Doing Business in Nigeria | 2012 Edition

Big beer Nigeria Breweries (Heineken) and Guinness Nigeria (Diageo) dominate the Nigerian beer market (2011) Pabod Others Breweries 1% 1%

Consolidated Breweries 8%

Sona Breweries 17%

Nigerian Breweries 47%

Guinness Nigeria 26%

SOURCE: Canadean Wisdom

and wellness implications of alcohol consumption, increasing religious observance, inflation as well as unemployment resulting in lower disposable income to consumers.

Wine and spirits With domestic production grossly underdeveloped, the wine market is heavily dependent on imports with demand largely generated by a wealthy urban niche market. However, the consumer audience is expanding, supported by increased marketing activities and promotional events which bodes well for the future, especially with the increasing perception that wine is a healthier alcoholic beverage than beer.

The spirits category has grown steadily assisted by the availability of affordable single-serve sachets and bottles plus marketing investment. However, the recent harsh economic environment has restricted annual progress while consumer enlightenment over health issues could dampen future category development. Increased marketing activities by distributors and suppliers will be needed to counter these influences. Fortunately for the spirits category, these are expected to be forthcoming, allowing for continuing annual growth. ● The report was originally produced by Canadean, a consumer research company based in London.

What you can learn from Lagos Business School

Understand emerging markets conditions and specifics

Meet other CEOs and managers to expand your network

Update existing management skills and acquire new ones

Lagos Business School is ranked with the worldâ&#x20AC;&#x2122;s top business schools in the area of open enrolment executive education. Financial Times, London, 2007-2011.

www.lbs.edu.ng executiveprogrammes@lbs.edu.ng

A variety of voices Nigeria is home to a vast array of media voices, which are deployed by advertisers, depending on their audience-specific needs.

T

he media in Nigeria reflects the very apparent diversity of its population, very much like many other segments of its society. With over 250 different, and frequently competing ethnic groups, and a size nearly twice that of California, in addition to a population of approximately 150 million, Nigeria is the most densely populated country in Africa. This is a huge market that is served by different kinds of media with the capability of reaching audiences that vary in tastes and aspirations.

Print media Nigeria’s thriving print media is made up of scores of newspapers of different national and regional hues and the weekly news magazines. Today, Nigeria has more than 50 different newspapers, both tabloid and broadsheet, and greater Lagos alone is home to numerous newspapers and magazines, most privately owned and retaining their editorial independence against the odds.

Nollywood director Tunde Kelani works with cameraman Sarafa Abagun.

elitist audiences that are generally being reached by the print market. Those who fall within this segment are based mainly in the big cities like Lagos, the nation’s economic hub, Abuja, the capital, other fairly urbanized centers and the capitals of the 36 states.

Drawing from its anti-colonialist and anti-military antecedents, Nigerian newspapers are fiercely independent, with a majority of them being privately owned. The Guardian, an institution in its own right, is the flagship of the newspaper industry. Although its print circulation hovers below 100,000 copies per day, its online edition gets over 2 million hits per day in readership.

There are other national newspapers like The Punch, Thisday, Vanguard, The Nation, The Sun (tabloid) and National Mirror. Their aspirations towards a nationalist outlook notwithstanding, many of Nigeria’s newspaper tend to cope with Nigeria’s very difficult National newspapers operational terrain by carving out niches for themselves in different parts of the Nigeria’s newspapers are fiercely independent and most are privately owned country. The Sun for example has its Newspaper First issued Publisher Website clout in the southeast. The Guardian, Guardian Newspapers www.guardiannewsngr.com The Guardian 1983 apart from its national appeal, has a BusinessDay 2001 BusinessDay Media www.businessdayonline.com strong niche in the Niger Delta.

In spite of the relatively large number of newspapers and magazines, the literacy rate is about 60 percent of the population. The implication is that it is the

National Mirror

2006

Global Media Mirror

www.nationalmirroronline.net

Nation

2006

Vintage Press

www.thenationonlineng.net

Punch

1971

Ajibola Ogunsola

www.punchng.com

Sun

2001

The Sun Publishing

www.sunnewsonline.com

Thisday

1975

Leaders & Company www.thisdaylive.com

Vanguard

1983

Vanguard Media

www.vanguardngr.com

Source: www.allyoucanread.com and interviews

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Doing Business in Nigeria | 2012 Edition

Broadcast media Since the liberalization of the broadcast industry in the early 1990s, television and radio stations have been proliferating in Nigeria, emerging as veritable sources for reaching populations not reached by the print medium. There are both private and state-owned stations. More than 30

Media

Nollywood

Nollywood entertains the continent With over 2,000 movies produced each year, Nigeria’s Nollywood is the second largest movie factory in the world after India’s Bollywood.

If you have never seen a Nollywood production, this may be explained by the business’s radically different business model.

“This is an $800 million per year business, but with an African twist,” explains Professor Uchenna Uzo of Lagos Business School. “Nigeria has only six cinemas, so to reach its audience (and believe me, these are fanatics) the movies are distributed straight in DVD format. At a sales price of $1.50 or a rental fee of pennies, the movies fly off the shelves.”

privately owned radio stations all over the country provide information, news and sports to people. Radio is the key source of information for many Nigerians not only because it is easily accessible both in the cities and the villages, but also most of the programs are in local languages.

In the 1950s, Nigeria made history as the first African country to host a television station and since then, the country has moved on to have the largest television station network on the continent (the Nigeria Television Authority) which has sub stations across the 36 states, Abuja and scores of smaller towns.

The number of the privately owned television networks has risen and most of these television stations are located in the commercial city of Lagos.

With more than ten television stations, Lagos city now has the highest number of television stations in a city in Africa.

With a population projected to reach 25 million by 2025, Lagos, no doubt is the most active advertising market in Nigeria, and the broadcast media has been crucial in driving this through stations like the Africa Independent Television (AIT), Channels, and Silverbird, among others.

Some broadcasters have both TV and radio, such as the Daar Group, which owns both AIT and the influential Ray Power FM, as well as the Silverbird Group, which runs the television arm, as well as Rhythm FM, fall into this category. However, the government-owned stations like NTA, Radio Nigeria, and Voice of Nigeria have more depth in terms of coverage.

Or rather from the arms of street hawkers, since this is the prime sales channel. Other sales channels include small street kiosks, gas stations and variety stores.

The movies are viewed in-home or in public spaces such as bars, community centers and on television screens. In fact, the movies cannot be shown on large cinema screens without being re-formatted.

Another popularity factor? The films are made in local languages, such as Hausa or Yoruba. This has also guaranteed export potential, with the most popular series going to neighboring countries such as Cameroon, Benin or Niger.

“No wonder Nigeria has developed a leading industry, which even South Africa cannot emulate,” Professor Uzo concludes. “Their productions tend to be more Hollywood style and less popular.”

New media Over the years, internet marketing has burgeoned in Nigeria. According to Africa Internet Usage and Population Statistics, internet penetration in Nigeria is now 29% with an estimated 44 million users. As a result, owing to the huge marketing potentials inherent in digital media, the internet is a part of the overall process of marketing with brands reaching out with new media, alongside traditional media.

In the Nigerian landscape, marketers and their clients are becoming aware of the need and underlying effects of online marketing and are positioning to reach a mainly youth based audience, and in the process, redefining and exploring models that traditional media had hitherto not provided. ●

By Armsfree Onomo Ajanaku Features writer, The Guardian, Lagos 2012 Edition | Doing Business in Nigeria

65

Good drives out bad Nigerian regulators responded to impact of the global economic crisis with reforms that have strengthened the country’s banking system.

I

n 2009, Nigeria’s banking sector was on the verge of collapse as the aftershocks of the global financial crisis washed onto the country’s shores.

When the capital market bubble burst, the balance sheet of Nigeria’s banks became eroded to the extent that some of them remained for some time on “life support” from the Central Bank of Nigeria (CBN).

Inter-bank rates spiked as banks tried to borrow at any rate to remain afloat, the size of non-performing loans significantly increased, customer panic reemerged and several instances of unethical conduct among the managements of banks were revealed.

A special audit of the country’s 24 banks (which accounted for more than 80% of the financial sector) showed that about half of them were exposed to margins and non-performing loans.

It was this scenario that set the stage for the broad set of bank reforms implemented by Lamido Sanusi, who took office as Governor of the CBN in 2009. Sanusi says that maintaining a safe and

FirstBank, headquarted in Lagos, is the oldest and largest bank in Nigeria.

sound banking sector is essential due to the key role banks play in facilitating economic growth and financing developmental projects, particularly key infrastructure, agriculture and industry.

“Most emerging market economies have been known to use the domestic financial institutions to execute real sector big ticket projects and financial institutions in Nigeria should not be an exception if we hope to achieve our developmental objectives,” says Sanusi, who in 2011 was named Central Bank Governor of the Year by The Banker magazine and one of the 100 most influential people in the world by Time magazine.

Intervention In August 2009, the CBN started imposing the reforms, which were of two types. In the first, the Central Bank intervened in ten banks, firing the chief executives of eight of them. It provided the financial

Interview

Better prepared Lamido Sanusi’s banking reforms were taken at the height of the financial crisis in 2009 and helped that country’s financial system survive the global shakeup. But with the global economic picture still uncertain, can Nigeria’s banks withstand another crisis?

I think the banks are much better prepared today than they were in 2009.

They had huge exposures to a capital market that was already in a bubble, and those exposures have gone because we have taken those loses and put in tight controls on margin lending.

Lamido Sanusi Governor Central Bank of Nigeria In 2009 they (banks) had huge and

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Doing Business in Nigeria | 2012 Edition

hedged exposures to oil marketers and the lessons that have been learned from that means that at the moment most of the oil marketing exposures are covered by product or by receivables.

So in terms of banks, the principal risk that we see is a massive collapse in oil price. This is really a nightmare scenario that affects government revenues and that is likely to affect those banks that are dependent on public sector liabilities, so it is a balance sheet affect. We know the banks that have public

top tier controlling an average of 66% of total assets and deposits in the industry. This is down from a prereform average of 70%.

The tier two and three banks have been the biggest winners over the past two years, grabbing a greater share of the sector’s assets and deposits from the intervened banks, according to an August 2011 Renaissance Capital report on Nigeria’s banks.

As a result of the reshuffle, three banks – including Guaranty Trust Bank, Zenith Bank and First Bank – now account for more than two-thirds of the top ten Nigerian banks by index weight.

sector with a $4 billion bailout and also created the Asset Management Corporation of Nigeria (AMCON) to buy up the non-performing loans in the banks and help bring the affected banks to capital adequacy.

Three of the bailed-out lenders failed to meet a September 2011 deadline to re-capitalize. They were nationalized by the state-owned Nigeria Deposit Insurance Corporation (NDIC), which insures banking deposits. The three lenders – Main Street Bank, Keystone Bank and Enterprise Bank – will be sold to new investors within two years.

The reforms have led to mergers and acquisitions that have reordered the banking sector rankings on the basis of assets and deposit. Nigerian lenders are now classified into three groups according to asset and deposit size. The total number of Nigerian banks has been reduced to 20, with seven lenders in the

sector exposures, we have run stress tests, and we have action plans to deal with that in the event of that happening.

The foreign exchange positions that they are holding are not significantly risky, so even in the event of a depreciation of the currency, we are not going to see the kind of impact we had in 2009 when the Naira crashed by 25%. By and large I think the banks are better prepared and I think the economy itself is more vulnerable only because of the very low buffers that we have in terms of reserves. But I think that with the news coming out of Europe, and what we know of the oil market, I do not see a major problem.

Used by permission from ABN Digital: www.abndigital.com

Development The second set of reforms focused on more mediumand long-term goals. The four parts of these reforms are enhancing the quality of banks, establishing financial stability, enabling healthy financial sector evolution, and ensuring that the financial sector contributes to the real sector.

The reforms have led to mergers and acquisitions that have reordered the banking sector rankings.

Bank quality is enhanced by industry remedial programs to fix the key causes of the crisis; risk-based supervision; reforming the regulatory framework; enhanced customer protection; and internal transformation of the CBN. Consumer confidence is being tackled in the reform program as complaint desks have been opened to ensure that financial services are delivered to customers as transparently and fairly as possible.

Financial stability is being addressed by actions to stem wide fluctuations in the key macroeconomic indicators, such as limiting capital market lending to a set proportion of bank’s balance sheet, and prohibiting banks from using depositors’ funds for proprietary trading, private equity or venture capital investment, and adjusting capital adequacy and capital requirements driven by stress tests by the CBN. Healthy financial sector evolution entails a review of the basic one-size-fits-all model of banking. This has made possible the emergence of international, national, regional, mono-line and specialized banks, such as non-interest banks.

2012 Edition | Doing Business in Nigeria

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Banking

The fourth part of the reform is focused directly on developing the real sector as it positions the banking system to contribute to the growth and development of the various sectors of the economy. The reform has identified priority sectors and developed tailored interventions to support and promote their growth.

These include a $1.3 billion Commercial Agricultural Credit Scheme (CACS) funded through the issuance of bonds. The scheme was initially to promote commercial agricultural enterprises but was later expanded to accommodate small scale farmers. As of December 2010, $617 million had been disbursed to 104 projects through 11 banks and 18 state governments.

The Power and Aviation Intervention Fund made available $1.9 billion to stimulate credit to the domestic power sector to help finance badly needed power projects and to refinance loans to the heavily indebted airline industry. To ensure that credit flows to the real sector of the economy, $1.3 billion has been made available for re-financing banks’ existing loan portfolios to the manufacturing sector and SMEs. Finally, the $1.3 billion Small and Medium Scale Enterprises Guarantee Scheme aims to promote access to credit by SMEs by guaranteeing loans by banks to the sector. The activities covered under the scheme include manufacturing and agricultural value chains; SMEs, processing, packaging and distribution of primary products. ● For more information: Central Bank of Nigeria: www.cenbank.org Chartered Institute of Bankers of Nigeria: www.cibng.org

Success story

Sound money FirstBank is Nigeria’s oldest bank and biggest based on third quarter 2011 revenues. It is regarded as the country’s most stable bank, having survived the 2009 banking sector reforms unscathed.

How would you assess the health of the banking sector in Nigeria at the moment?

The challenging conditions faced by the global financial market manifested locally and led to fund withdrawal from the Stephen Olabisi capital market perhaps in an attempt to Onasanya FCA General Managing take profit and meet obligations in their Director and CEO home country. As expected the market responded to the fund withdrawal and equity prices took about 66% plunge with the industry heavily exposed to the market. The result is what we experience today.

What strategies are in place to strengthen and develop the FirstBank of Nigeria brand in the coming years?

The FirstBank brand has a high top-of-mind awareness within the Nigerian public. Indeed, it is near impossible to find an individual in Nigeria who does not know about FirstBank.

However, the strategic direction for sustainable growth and leadership in the coming years is to continue the evolution and transformation of the brand in order to ensure its relevance and appeal to younger generations of customers while not alienating our long-standing customers. Our goal is to significantly grow market share among the young and upwardly-mobile consumer segment.

Nigeria’s top 10 banks by revenue (first 9 months 2011) Rank Name 1

FirstBank

Year founded CEO 1894

Revenues $M

Profits $M

Stephen Olabisi Onasanya

1,157

256

www.firstbanknigeria.com

Website

2

Zenith Bank

1990

Godwin Emefiele

1,144

269

www.zenithbank.com

3

Guaranty Trust Bank

1990

Olutayo Aderinokun

863

244

www.gtbank.com

4

United Bank for Africa

1961

Phillips Oduoza

830

62

www.ubagroup.com

5

Access Bank

1989

Aigboje Aig-Imoukhuede

522

82

www.accessbankplc.com

6

Diamond Bank

1990

Alex C. Otti

425

-4

www.diamondbank.com

7

First City Monument Bank

1982

Ladipupo Balogun

343

50

www.firstcitygroup.com

8

Stanbic IBTC Bank

1989

Chris Newson

269

38

www.stanbicibtcbank.com

9

Fidelity Bank*

1987

Reginald Ihejiahi

190

19

www.fidelitybankplc.com

10

Skye Bank

1989

Kehinde Durosinmi-Etti

150

14

www.skyebankng.com

* First six months 2011

Source: Nigerian Stock Exchange, Finanacial Times, websites

2012 Edition | Doing Business in Nigeria

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For all enquiries call: 0700FIRSTCONTACT (0700-34778-2668228); 01-4485500; 0708-062-5000 Email: firstcontact@firstbanknigeria.com www.firstbanknigeria.com | RC: 6290 Join / Follow / View Us On

Post-reform picture Snapshots of Nigeria’s leading banks in order of revenues posted through third quarter 2011.

F

irstBank of Nigeria – Founded in 1894 and listed on the Nigerian stock exchange in 1971, FirstBank is Nigeria’s oldest bank and largest by 2011 revenues.

It provides commercial banking services, including merchant and investment banking, fund management, registrars, advisory services as well as trusteeship.

With 611 business offices nationwide, it has the second largest branch network in Nigeria and abroad.

It accounts for more than 18% of the top 10 banks, with total assets accounting for more than 13% of the industry’s total after it shrunk from its pre-merger and acquisition share of more than 14% of the industry’s total assets. FirstBank is regarded as Nigeria’s most stable bank having survived the 2009 banking sector reforms unscathed. It has the highest post merger and acquisition deposit shares of Nigerian banks of nearly 13% of the industry’s total. FirstBank has a long- and short-term credit rating of B+/B from Standard & Poor’s with an outlook rating of positive.

Zenith Bank – With a total business office network of 315, Zenith Bank accounts for 11% of total post merger and acquisition asset share of Nigerian banks. It also has the second largest share of the banking sector’s total post merger and acquisition deposit shares with almost 12%. The bank’s core services include corporate and investment banking, commercial banking, foreign exchange, and treasury and cash management. The bank has a long- and short-term credit rating of B+/B from Standard & Poor’s with an outlook rating of positive.

Guaranty Trust Bank – Combined, Guaranty Trust Bank and Zenith Bank account for about half the total size of Nigeria’s top 10 bank index. Founded in 1990, GT Bank (as it is also known) offers retail banking, corporate finance, loans and advances, money market activities and foreign exchange operations services.

The bank has risen quickly and is currently the most profitable Nigerian bank accounting for a quarter of the top 10 index weight. It is a tier one bank and owns almost 7% of the post-merger and acquisition asset 70

Doing Business in Nigeria | 2012 Edition

Most of Nigeria’s banks are headquartered in the Lagos business district.

shares of Nigerian banks. GT Bank also own nearly 7% of the post merger and acquisition deposit shares of Nigerian banks with 186 branch offices across Nigeria. The bank is recognized for excellence and widely regarded as Nigeria’s most respected bank.

GT Bank has a long- and short-term credit rating of B+/B from Standard & Poor’s with an outlook rating of positive.

Stanbic IBTC Bank – One of two lenders with the Central Bank’s approval to offer Islamic banking services in the country, Stanbic IBTC Bank’s operations in Nigeria include investment banking, wholesale banking and brokerage services. A member of the Standard Bank Group, it has 141 branch offices. It accounts for more than 2% of total banking assets in the sector and controls almost 2% of total deposits. Through its brokerage subsidiary, IBTC Asset Management, it operates several mutual funds including the IBTC Nigerian Equity Fund, the largest open-ended mutual fund in Nigeria with a net asset value in excess of several billion under management.

Stanbic IBTC is the only bank that has a pension fund administrator through IBTC Pension Managers.

Access Bank – With its acquisition of a bailed-out lender Intercontinental Bank, Access Bank was one of the biggest winners in the Nigerian banking sector reform over the past two years. The acquisition made Access Bank a tier one bank in 2011 and its asset share grew from 5.0% of the industry total to more than 10%. Its deposit size also grew from just over 4% of industry total to almost 10% while the number

Bank Profiles

Success story

Capitalizing on reform Access Bank is one bank that has capitalized heavily on the opportunities presented by the Nigerian banking reforms of 2009.

George Osodi

The bank leapt into the first tier of banks after post merger acquisitions. In 2011, it acquired Intercontinental Bank, a lender bailed out by the Central Bank, and its asset share doubled to 10% of the banking industry total. Moreover, its deposit share jumped from 4.3% to 9.8% of industry total while its nationwide business office network more than tripled to 491 from 131.

of branch offices increased from 131 to 491. Access Bank is one of Nigeria’s leading e-payment service providers. It has business offices in seven African countries and in the United Kingdom. Access Bank has a long- and short-term credit rating of B+/B from Standard & Poor’s with an outlook rating of negative.

United Bank of Africa – A Pan-African bank, United Bank of Africa (UBA) is one of the oldest lenders in Nigeria. It has the largest number of business offices in the industry, with a total of 750 in 18 countries across Africa including 711 offices in Nigeria alone.

UBA accounts for more than 9% of the banking industry’s post merger and acquisition asset shares and maintains 11% of industry deposits. UBA has an outlook rating of stable from Fitch Ratings.

First City Monument Bank – Offering investment as well as retail banking services, First City Monument Bank (FCMB) participated actively in the banking reforms. FCMB accounts for 5% of the industry’s post merger and acquisition total. It has 317 business offices and accounts for almost 5% of industry deposits. FCMB has a long- and short-term credit rating of B+/B by Standard & Poor’s.

Skye Bank – A commercial bank formed in 2006 when former Prudent Bank merged with four other lenders, Skye Bank’s services include corporate and investment banking as well as private banking. Skye Bank accounts for 4% of total industry assets and more than 4% of total deposits. It has 249 business offices across Nigeria.

“Among our corporate objectives is to rank among Nigeria’s top three leading financial service institutions,” says Aigboje Aig-Imoukhuede, CEO of Access Bank, which was incorporated as a privately owned commercial bank in 1989.

The bank today is among the ten largest banks in Nigeria in terms of assets. Based on its recent success, it seems well on the way to reaching its objective. An October 2011 Renaissance Capital report stated: “Access Bank is the biggest winner in the Nigerian banking sector reform of the past two years.”

In 2001, Access Bank obtained a universal banking license from the Central Bank to offer other banking services.

In 2002, it began an ambitious transformation drive to reposition itself as one of Nigeria’s leading financial institutions within a five-year period. This task was perceived by many as audacious, given the realities of the bank at the time.

The impact of the transformation agenda was reflected in the first year. The bank’s balance sheet grew 100% and it posted an impressive one billion Naira ($6.3 million) in profit before tax. This marked the beginning of what would be a six-year record of triple-digit growth.

Fidelity Bank – With a strong base in the agricultural industry, Fidelity Bank’s operations also include corporate banking, private banking and treasury management. The bank accounts for almost 3% of the industry’s total assets.

Diamond Bank – Diamond Bank’s services include investment banking, foreign exchange, electronic and internet banking products, retail as well as corporate banking. Diamond Bank accounts for nearly 4% of the industry’s total assets. It has 215 business offices nationwide and controls almost 4% of total industry deposits. Diamond Bank has an outlook rating of stable from Fitch Ratings. ● 2012 Edition | Doing Business in Nigeria

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Fresh opportunities Nigeria’s ambassador to France, H.E. Gordon Bristol, discusses the improved relationship between France and Nigeria as well as the investment opportunities for French multinationals in English-speaking Nigeria.

Paris plays vital role in Nigeria’s improving economy.

Question: What are three reasons you would give for investors of any nationality to go to Nigeria?

Ambassador Bristol: First, Nigeria is a very large market. There are over 150 million people with various needs and requirements both as individuals and as a country. Second, Nigeria has a vast amount of resources, the number one of these resources being its hardworking people. There are a large number of highly educated and trained people from various institutions, local and foreign. Their variety of skills and services come at a very modest price compared to other economies.

Lastly, the Nigerian government does not interfere in private affairs and business. The investment climate is very positive and there are provisions for the movement of capital in and out of the country including profit repatriation; the exchange rate regime has also been liberalized over the years. I believe, all in all, the large skilled population of Nigeria, its natural resources plus an investment-friendly government are very potent reasons for anyone looking to invest.

The gateway to Africa is also the heart of Africa.

Question: What is your view on the relationship between France and Nigeria?

Ambassador Bristol: France is one of the most important diplomatic missions of Nigeria. FrancoNigeria relations are improving in leaps and bounds.

In recent years it has taken the form of a strategic relationship. At some point in our history, I think there was perhaps a sense of competition even confrontation. Today this is being replaced largely if not completely with collaboration and cooperation.

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Doing Business in Nigeria | 2012 Edition

Question: When French President Nicolas Sarkozy held the French-African summit in 2011 in Nice, he met privately with only two presidents, South African President Jacob Zuma and President Goodluck Jonathan of Nigeria. How would you describe this gradual shift in attitude of France towards Nigeria?

Is it perhaps in recognition that Anglophone Africa is becoming a softer target for French multinational companies?

Ambassador Bristol: I believe that France is realistic enough to know that in any constructive engagements with Africa, it has to take into account some of the leading players on the African continent and Nigeria is one of the leading players. South Africa is another and I believe Egypt is also.

If you look at President Sarkozy’s Cape Town address in 2008 there are elements that gave an indication of how France was going to fashion its relations with Africa. The meetings with President Jonathan and President Zuma can be seen as recognition of the importance of Nigeria and South Africa.

Question: What are the greatest areas of cooperation with France?

Ambassador Bristol: There are a number of areas where we want to see greater intensity in the cooperation, especially the economic dimension of it. France’s involvement in the Nigerian economy is largely concentrated in the oil and gas sector. Total is a major player. There is some diversity. Peugeot in the automobile sector, for example. Given France’s knowhow in multiple fields, such as public transportation, we want to see greater French involvement and

Perspective

Power Producers (IPPs) are being formed. One of the challenges we face with the current transmission line infrastructure is that it is weak and cannot carry the necessary load.

There are a whole host of reforms that are being carried out and implemented simultaneously in the power sector, with the clear aim of attracting private investment, up to and including the pricing of the power, because if the tariff is not right, there will not be private money flowing into that sector. The reforms have to be holistic for it to be effective. You cannot address just one segment of it and hope for the best. All segments need to be addressed at the same time.

presence in inter-city and intra-city transportation.

Looking at agriculture, France is one of the bread baskets of Europe, so we want to see greater input in that sector, too, which is a key strategic sector for Nigeria. The energy sector – whether it is gas, petrol or even nuclear energy, where Areva for instance, is a leading player – is another one. I believe there is great room for extending and intensifying France’s presence in petroleum and energy sectors, and in other sectors in Nigeria generally.

Question: Is the supply of power a main concern of the French investors you speak with?

Ambassador Bristol: No, but if they do bring it up I explain to them that it is actually an opportunity that is calling for investment. Nigeria operates a private sector driven mixed economy. What is seen as a challenge can also be seen as an opportunity. The government has taken on the challenge by deregulating and freeing up market processes, and now that the sector has been freed-up, we hope that investors, both local and foreign, will take advantage of that.

Question: What is being done in concrete terms to improve the power sector and is there the genuine political will behind this?

Ambassador Bristol: President Jonathan, when he was Vice President, was Chairman of the Committee on Power. He has taken on the power challenge and his full attention is being paid to it. The Power Sector Reform Act has been passed and the PHCN has been deregulated. I believe that the private sector will play a greater role in the generation of power. Independent

Question: There have been some positive responses in recent years benefiting from the high oil prices; 7% growth into 2009, 8.1% was predicted in 2010 which has now been confirmed. This all underscored a significant and growing resilience of the Nigerian economy. To what would you ascribe this new or growing resilience?

Ambassador Bristol: H.E. 2008 and 2009 were difficult years with the global financial crisis, exploding commodity prices, and other structural challenges which affected the African continent as well. Despite these, we had very robust growth in many African economies, particularly the Nigerian economy, where we grew in the region of 7%-8% per annum which is not a mean feat at all. A number of factors were responsible for this. First of all, there has been a great deal of good house-keeping: changes and reforms that were started from the Obasanjo administration, through to the Yar’Adua administration started to yield positive results.

The banking consolidation and reforms of the financial sector for instance, the earnest fight against corruption, were some key elements in a combination of many factors which have yielded positive results for Nigeria. Generally there has been a growing awareness on the part of both individual citizens and corporate Nigeria of the need for change. We have a ‘Vision 20:2020’ program, whereby Nigeria plans to be among the 20 most developed and industrialized economies by year 2020. This is a very serious program to which the government and corporate Nigeria are committed. It is not surprising therefore that this has yielded positive results. Of course, the fairly steady growth of oil prices has contributed to this scenario, not to mention the good performance of the agriculture sector. ● Interview conducted by Leo Brenner 2012 Edition | Doing Business in Nigeria

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Hotel industry on the move This is no time for the hotel industry to take a vacation. The Nigerian government is promoting hotel growth with a hefty new round of incentives to investors.

N

igeria saw a remarkable growth in international tourist arrivals of more than 8% in the first quarter of 2011. Abuja, the capital city, and Lagos, the commercial capital, were the favorite destinations for more than 80% of foreign visitors. Other cities, including Port Harcourt, the hub of the oil-rich Niger Delta region, and the other state capitals, excluding the troubled northeast region, accounted for the rest.

Expectedly, Lagos and Abuja account for most of Nigeria’s luxury hotels and resorts and these cities are where most of the tourism-related investments in Nigeria are planned to be developed. Areas outside these two major cities have the potential to be tourist destinations as they offer significant development opportunities in tourism investments, with the government willing to provide incentives.

Currently there are about 1,700 registered hotels in the country, totaling more than 20,000 rooms with an average of 85% occupancy rate, according to the Minister of Culture and Tourism Duke Edem.

“The government, through its tourism development policy, aims to increase the number of registered hotels to 2,500 by 2013 and achieve an average occupancy rate of 90% through a two-day visa policy to encourage tourist arrivals,” Edem said.

Despite the recent growth, tourism still accounts for a small share of Nigeria’s GDP. The hotel and restaurant industry for example, contributed less than 1% to the GDP in 2011. The government’s plans include boosting the contribution of hotels to the GDP to 2.5% by 2013.

Investors get several government incentives including 100% equity ownership of companies in Nigeria and repatriation of profits. The government has also 74

Doing Business in Nigeria | 2012 Edition

Plans are to increase the contribution of hotels to the GDP.

introduced such incentives as, tax holidays, tax rebate and soft loans, with flexible repayment plans for potential investors in tourism Major brands Some of the world’s leading hotel brands are present in Nigeria. Many local hotels also have franchises with international chains including the Hilton Group, Sheraton Hotel & Towers, Le Meridien Hotels, Protea Hotels Group, Ibis Hotel, Novotel Hotel, Golden Tulip Hotel, Oriental Hotel and Diamond Suites.

Hotels in Nigeria are classified into international hotels, national hotels, urban hotels, motels and guest houses, sub-urban hotels and rural hotels.

Construction of quality hotels in Nigeria has not met

Hotel growth Nigeria is second only to Morocco in new hotel developments on the continent 15,000

10,000

5,000

0 Morocco

Nigeria

South Africa

Rooms planned (2011) Source: Lodging Econometrics

Hotels

Success story

A vibrant market South Africa’s Protea Hotels was the first and is now the biggest international group in Nigeria.

Protea Hotels was founded in South Africa in 1984. Since then, Protea has expanded across the continent to become Africa’s largest and leading hospitality group with 130 hotels in eight African countries.

George Osodi

Nigeria is a country of strategic growth and value to Protea, according to Rudi Janse van Rensburg, General Manager of Protea Hotel Asokoro in Abuja.

demand and the country’s hotel market features mostly expensive hotels located primarily in Lagos and Abuja.

Currently, there a total of190 hotel construction projects in Africa totaling 37,141 guestrooms, according to Lodging Econometrics. Moroccan projects total 11,955 guestroom projects, while Nigeria is second on the continent with 3,937 guestroom projects.

South Africa has 2,492 guestroom projects. The three countries combined account for half of the continent’s total projects.

“Nigeria is a vibrant market with huge potential, hence our continued expansion,” Rensburg says. “Our hotels in Nigeria are performing well and the prognosis is most positive.”

Protea was one of the first international hotel chains to set up shop in Nigeria in the wake of the country’s return to democratic rule in 1999. It opened its first hotel in Lagos in 2001 and has become the most successful international hotel business in Nigeria.

It operates 11 hotels in the major cities of Abuja, Lagos and Port Harcourt and has four more hotels under construction in other parts of the country. In 2012, Protea plans to open a new 125-guestroom project in Lagos.

Protea is also expanding into neighboring West African countries like Ghana where one hotel is under construction.

But Nigeria, a regional and continental power, remains the group’s main focus for new business in Africa.

“In addition to current projects under construction in Nigeria, various further hotels are in the planning stages,” Rensburg adds. “Our brand will continue to be an industry leader in Nigeria and throughout Africa.”

New developments Developers of the new projects in Nigeria include large foreign chains, such as HDV Intercontinental Group (with projects for its IBIS brand), the Hilton Group (at the Murtala Muhammed International Airport in Lagos), Milan Group (with its Intercontinental brand project), Capital Alliance Group (the Protea Select brand) and Golden Tulip brand. Local developers include Eko Hotels, Ramia Hotels, Black Diamond Hotels and Woodridge Hotels.

Milan Group, HDV and Sun International. International brands will contribute 60% of the projects (2810 guestrooms) within that period. Regional brands will add 8.1% (378 guestrooms) and other unbranded investors will add 31.9% (1,498 guestrooms).

Lagos is Nigeria’s favorite destination for tourists and it also the largest hotel market in the country with its excellent hotel investment fundamentals. Most of Nigeria’s hotel investments are focused on the urban areas of Lagos and Abuja due to its developed infrastructure and the government’s Public Private Partnership (PPP) scheme.

The Hilton, which currently runs Nigeria’s biggest five star hotel, Transcorp Hilton Abuja, plan to open one more facility at the Lagos airport which will add 250 guestrooms and is expected to open in 2013. National chains like Eko Hotels Group, Woodridge Hotels and Crowne Plaza are also expanding. Crowne Plaza is building a 275-guestroom facility at the Lagos airport. ●

A lot of the new hotel projects within the period belong to foreign investors like the Hilton, Protea Group,

For more information: Hospitalitynigeria: www.hospitalitynigeria.com 2012 Edition | Doing Business in Nigeria

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Ready to grow With incentives from the government, Nigeria’s vast potential for tourism is set to bloom.

T

he tourism industry is one of the Nigerian government’s main targets for development as it plans to diversify the economy away from its dependence on crude oil production and export.

Nigeria’s tourism potential is vast. It is endowed with scenic geographical features, a beautiful tropical climate, fascinating beaches, waterfalls, warm springs, hills, temperate plateaus, beautiful mountains and a range of unique species of tropical wildlife.

“The tourism industry has the potential of becoming a huge foreign exchange earner for the country,” says Goodie Ibru, Chairman of Ikeja Hotels and Tourist Co. of Nigeria.

The total number of international air visitors to Nigeria in 2004 - the benchmark year - was estimated at 190,000. The level of spending by international tourists in 2004 was estimated to be $280 million.

While the incidence of domestic leisure travel may be low, the sheer size of Nigeria’s population of 160 million means that there is a significant contribution to the demand for tourism services from domestic travel activity.

The potential revenues that can be generated from domestic tourism are high. For example the revenue generated from travel within the country by employees and staff of government departments and agencies generates an estimated demand of $68 million in the transport and hospitality sectors.

Incentives “The Nigerian hospitality and tourism industry is in its infancy with huge growth potentials to improve and grow to international levels,” says Duke Edem, Minister of Culture and Tourism, adding that the government aims at using its tourism potentials to generate foreign exchange, encourage development, promote tourism-based rural enterprises, generate employment and accelerate rural urban integration and cultural exchange.

Nigeria has put in place incentives to encourage 76

Doing Business in Nigeria | 2012 Edition

Potential revenues generated from tourism are high.

domestic and foreign investor’s participation in the tourism industry. The tourism sector was accorded preferred sector status in 1991. This makes the sector qualify for incentives (available to similar sectors of the economy) such as tax holidays, longer years of moratorium and import duty exemption on tourism related equipment.

Nigeria has also established a specialized training institute – the National Institution for Hotels and Tourism Studies in Bagauda, Kano – where middle level manpower training is provided.

State governments are also prepared to facilitate acquisition of land through issuance of certificate of occupancy for tourism development purpose. Some states have specific areas as tourism development zones, thereby making acquisition of land for such projects more viable.

The combination of factors, both geographical and socio-cultural, makes Nigeria a good tourist destination. Nigeria, because of its size and physical location, spans several climatic and vegetation belts.

The equatorial climate provides radiant sunshine most of the year.

There are airports in the major cities of Nigeria.

Several domestic airlines and major European and African airlines, such as Nigerian Airlines, combine to link Nigeria with the rest of the world through the international airports in Lagos, Kano, Port Harcourt, Calabar, Abuja and Maidugiri.

Tourism

Insight

Nigeria’s prime natural tourist attractions include the following: • Ikogosi Warm Springs is a natural warm spring that flows and mixes with cold water issuing from another spring.

• Owu Falls in Kwara State is the steepest natural waterfall in West Africa and is surrounded by a tropical rainforest in which can be found a wide range of animals and plants not seen in other parts of the world.

George Osodi

• Niger-Benue Confluence is where the Rivers Niger and Benue join at Lokoja. It can be toured by boat, canoe or viewed from a closeby hill giving a panoramic view of the confluence.

Opportunities Nigeria offers a variety of tourism investment potential from overland safaris, national parks, game and gorilla viewing, deep sea recreational fishing, lake and river fishing to archaeological tours, beach resorts and hotels, transportation (water, land and air), surfing and snorkeling, theme parks and exposition centers.

• Assop Falls is located about 40 miles from Jos city and is a place for picnicking, swimming and enjoying the grand view of the scenic landscape.

• Wikki Warm Springs is deep inside the Yankari Game Reserve. The warm water stays the same warm temperature day and night.

• With a coastline of about 350 miles, Nigeria has natural sites with tropical coconuts, mangrove and other seaside vegetation for vacationers and visitors to enjoy the Atlantic. Several beaches are open to visitors including Badagry, Lekki, Bar, Eleko and Calabar.

Nigeria has been inhabited since 9000 BCE and is rich with archaeological relics and fine collections of arts and crafts showing historical civilization. Fascinating reminders of Nigeria’s ancient past can be found in all branches of Nigeria’s national museums. However, many of Nigeria’s historic sites are in a dilapidated state presenting great investment opportunities.

the northern Sokoto Caliphate, the Kano Durbar or traditional horse riding in the ancient city of Kano, the Eyo festival in Lagos and the annual Calabar carnival.

These festivals are performed annually attracting both local and international tourists. State governments have begun investing and collaborating with private investors willing to promote these festivals.

Similarly, the country has eight natural attraction sites developed as national parks, but only a few have been properly exploited.

Nigeria also holds strong potential in the area of sports tourism. It hosted the FIFA U-17 World Cup in 2009, the All Africa Games in Abuja in 2003, and a World Beach Soccer tournament, Copa Lagos, in December 2011 on the beautiful Lagos beachfront, which attracted visitors from all over the world.

Nigeria is bidding for the 2015 African Cup of Nations and is favored to host other sports tournaments in Africa, including the All African Games and athletic championships. ●

Conference and business tourism is another area that presents opportunities. More than 70% of the visitors to Nigeria are on business trips. Nigeria is the capital of Economic Community of West African State (ECOWAS), housing its administrative headquarters in Abuja.

Nigeria’s cultural assets are among the most fascinating on the continent. Cultural celebrations and festivals are major generators of internal and international tourism in the country.

Festivals include the Argungu fishing festival in

For more information: Nigerian Arts and Culture Directory: www.nacd.gov.ng Nigeria Tourism Development Corporation: www.tourism.gov.ng Hospitalitynigeria: www. hospitalitynigeria.com 2012 Edition | Doing Business in Nigeria

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Better ratings In October 2011 Fitch Ratings revised Nigeria’s outlook from negative to stable.

N

igeria’s improved outlook reflects an improved outlook for reforms following elections in April and the appointment of a strong economic team.

In addition, tighter monetary policy and slightly better fiscal discipline have arrested the rapid pace of reserves decline seen in the first three quarters of 2010, which had prompted the negative outlook last year.

Support from the state governors for the removal of the fuel subsidy in exchange for 60% of the savings going towards meeting the new minimum wage will improve the chances that it will be implemented. The reform will reduce foreign exchange and fiscal leakage and reduce pressure on Nigeria’s reserves, promote more efficient energy usage and spur downstream investment, according to Fitch.

In addition, the rating agency says, the planned reforms to the agriculture sector would improve output and productivity and increase rural incomes, with a huge medium-term positive impact on the economy, even if they are only partially implemented.

Nigeria’s key credit indicators – strong growth, low public debt and a strong external balance sheet – continue to provide strong support to the rating. Fitch expects Nigeria to sustain its high growth rates of 7%-8%, which are far higher than the ‘BB’ five-year median of 4.4%, as a result of the planned reforms, continued recovery of oil production and strong domestic demand, the agency reports.

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Real growth Growth rates of real GDP since 2010

7.40

6.64

7.72

7.86

8

8.36

10

7.69

According to Fitch, key planned regulatory reforms in the power and oil sector are moving ahead, privatization in the power sector has started and tariff and gas price reforms are scheduled for early 2012.

The reforms are expected to facilitate the investment needed to address the acute power shortage.

Nigeria stands tall in a world of investment opportunities.

7.36

“The stable outlook anticipates continued reforms progress, a tighter budget for 2012, including progress towards scrapping the petroleum subsidy and making the Nigeria Sovereign Investment Authority, the sovereign wealth fund, operational,” says Veronica Kalema, a director in Fitch’s Sovereign group.

6

4

2

0 Q1

Q2

Q3 2010

Q4

Q1

Q2

Q3

2011 Source: Nigerian National Bureau of Statistics

Fiscal policy has been tighter at the federal government level in 2011 and total international reserves have been stable over the past year.

However, Fitch says, overall fiscal policy at the consolidated government level is still relatively loose, with overall spending still high, making monetary and exchange rate policy more challenging. Proposals to base the 2012 budget on a lower benchmark oil price are therefore encouraging, although the ultimate

Country Risk

Editorial

On the whole, yes Invest in Nigeria? All things considered, the answer is yes.

The positives:

Denis Worrall, Chairman of Omega Investment Research

• With a population of around 150 million, Nigeria is Africa’s most populous state. It is therefore potentially an enormous market – something foreign companies are quietly discovering.

• The Nigerians have one of the highest literacy rates in Africa; and they include some naturally very enterprising people.

fiscal stance will depend on the budget that emerges from the National Assembly.

Some caveats Although international reserves have stabilized, they have not picked up despite higher oil prices and production owing to high fiscal spending including the large fuel subsidy, as well as negative real interest rates and private foreign exchange demand. This is a negative for Nigeria compared with other oil producers which have rebuilt reserves.

Increased pressure on the currency due to global risk aversion prompted the Central Bank of Nigeria to increase interest rates sharply by 275bps in early October (bringing the overall increase in interest rates since September 2010 to 600bps) to stabilize the exchange rate and restore confidence. This also restored positive real interest rates, Fitch states, which will help bear down on still relatively high inflation.

However, fiscal reforms will ultimately need to be part of the solution to rebuild Nigeria’s reserves and reduce pressure on the currency and interest rates.

Passage of the long-delayed Petroleum Investment Bill would be positive in this respect, as well as reducing uncertainty regarding the energy sector investment regime, according to Fitch.

The agency cautions, however, that a sharp and sustained fall in oil prices or a decline in reserves owing to renewed fiscal slippage are the likely main sources of downward pressure on the ratings. ● Source: Fitch Ratings www.fitchratings.com

• With the return of civilian rule, Nigerian political parties and the party system are quite conventional. What gives stability is that most share the same basic socio-economic approaches.

• One senses that Nigerian business is consciously beginning to diversify. This means space for entrepreneurs, and all the signs are that Nigeria’s very big and talented diaspora is beginning to come home with new ideas and business values.

• Nigeria also has a very high agricultural potential. Nigeria was once the bread basket of the rest of West Africa.

There clearly is a role here for South African skills.

• Nigeria has a vigorous and diverse print media.

The negatives: • Malaysia, Singapore, Taiwan and Indonesia were roughly at the same level of development as Nigeria in 1960. All of them have developed while the vast majority of Nigerians are at the same level of development as they were in 1960.

• Nigeria is subject to ethnic and religious tensions. These have to some extent been muted by the expansion of the federation from three big regions to 36 small states, which largely correspond with different ethnic groups.

• Oil has the potential to transform Nigeria’s economy.

Instead it has led to corruption on a vast scale and the development of a tiny class of extraordinarily rich Nigerians, with the majority of the population still in poverty. Dependence on oil has also stunted growth in other sectors of the economy.

• Transparency International says Nigeria is one of the fifth most corrupt countries in the world.

Omega Investment Research is a South African-based investment advisory and strategic marketing consultancy.

2012 Edition | Doing Business in Nigeria

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Nigeria

What

means to me

In this excerpt from his book Education of a British-Protected Child, Albert Chinualumogu Achebe, popularly known as Chinua Achebe, looks back on his troubled relationship with his country. Born 16 November 1930, Chinua Achebe is a Nigerian novelist, poet, professor and critic. He is best known for his first novel and magnum opus Things Fall Apart (1959), which is the most widely read book in modern African literature.

N

igerian nationality was for me and my generation an acquired taste – like cheese. Or better still, like ballroom dancing. Not dancing per se, for that came naturally; but this titillating version of slowslow-quick-quick-slow performed in close body contact with a female against a strange, elusive beat.

I found, however, that once I had overcome my initial awkwardness I could do it pretty well.

Perhaps these irreverent analogies would only occur to someone like me, born into a strongly multiethnic, multi lingual, multireligious, somewhat chaotic colonial situation. The first passport I ever carried described me as a “British Protected Person”, an unexciting identity embodied in a phrase that no one was likely to die for. I don’t mean it was entirely devoid of emotive meaning. After all, “British” meant you were located somewhere in the flaming red portion of the world map, a quarter of the entire globe in those days and called “the British Empire, where the sun never sets”. It had a good ring to it in my childhood ears – a magical fraternity, vague but vicariously glorious.

My earliest awareness in the town of Ogidi did not include any of that British stuff, nor indeed the Nigerian stuff. That came with progress in school.

Ogidi is one of a thousand or more “towns” that make up the Igbo nation, one of Nigeria’s (indeed Africa’s) largest ethnic groups. But the Igbo, numbering more than 10 million, are a curious “nation”. They have been called names such as “stateless” or “acephalous” by anthropologists; “argumentative” by those sent to administer them. But what the Igbo are is not the negative suggested by such descriptions but strongly, positively, in favor of small-scale political 80

Doing Business in Nigeria | 2012 Edition

organization so that (as they would say) every man’s eye would reach where things are happening. So every one of the thousand towns was a mini-state with complete jurisdiction over its affairs. A sense of civic attachment to their numerous towns was more real for pre-colonial Igbo people than any unitary panIgbo feeling. This made them notoriously difficult to govern centrally, as the British discovered but never appreciated nor quite forgave. Their dislike was demonstrated during the Biafran tragedy, when they accused the Igbo of threatening to break up a nationstate they had carefully and laboriously put together.

The paradox of Biafra was that the Igbo themselves had originally championed the Nigerian nation more spiritedly than other Nigerians. One proof of this: the British had thrown more of them into jail for sedition than any others during the two decades or so of pre-independence agitation and troublemaking. So the Igbo were second to none on the nationalist front when Britain finally conceded independence to Nigeria in 1960, a move that, in retrospect, seems like a masterstroke of tactical withdrawal to achieve a supreme strategic advantage.

At the time we were proud of what we had just achieved.

True, Ghana had beaten us to it by three years, but then Ghana was a tiny affair, easy to manage, compared to the huge lumbering giant called Nigeria. We did not have to be vociferous like Ghana; just our presence was enough. Indeed, the elephant was our national emblem; our airline’s was the flying elephant! Nigerian troops soon distinguished themselves in a big way in the United Nations peacekeeping efforts in the Congo.

Our elephant, defying aerodynamics, was flying.

Memoir

Travelling as a Nigerian was exciting. People listened to us. Our money was worth more than the dollar. In 1961 when the driver of a bus in the British colony of Northern Rhodesia asked me what I was doing sitting in the front of the bus, I told him nonchalantly that I was going to Victoria Falls. In amazement he stooped lower and asked where I came from. I replied, even more casually: “Nigeria, if you must know; and, by the way, in Nigeria we sit where we like in the bus.”

Back home I took up the rather important position of director of external broadcasting, an entirely new radio service aimed primarily at our African neighbors.

I could do it in those days, because our politicians had yet to learn the uses of information control and did not immediately attempt to regiment our output.

They were learning fast, though. But before I could get enmeshed in that, something much nastier had seized hold of all of us.

The six-year-old Nigerian federation was falling apart from the severe strain of regional animosity and ineffectual central authority. The transparent failure of the electoral process to translate the will of the electorate into recognizable results at the polls led to mass frustration and violence. While western Nigeria, one of the four regions, was going up literally in flames, the quiet and dignified Nigerian prime minister was hosting a Commonwealth conference to extricate Harold Wilson from a mess he had got himself into in faraway Rhodesia. But so tense was the local situation that the visiting heads of government had to be airlifted by helicopter from the Lagos airport into a secluded suburb to avoid the rampaging crowds.

Nigeria’s first military coup took place even as those dignitaries were flying out of Lagos again at the end of their conference. One of them, Archbishop Makarios of Cyprus, was in fact still in the country.

The prime minister and two regional premiers were killed by the coup-makers. In the bitter, suspicious atmosphere of the time, a naively idealistic coup proved a terrible disaster. It was interpreted with plausibility as a plot by the ambitious Igbo of the east to take control of Nigeria. Six months later, northern officers carried out a revenge coup in which they killed Igbo officers and men in large numbers. If it had ended there, the matter might have been seen as a tragic interlude in nation building, a horrendous tit for tat. But the northerners turned on Igbo civilians living in the north and unleashed waves of brutal massacres, which Colin Legum of the Observer was the first to describe as a pogrom. It was estimated

that 30,000 civilian men, women and children died in these massacres. Igbos were fleeing in hundreds of thousands from all parts of Nigeria to their homeland in the east.

I was one of the last to flee from Lagos. I simply could not bring myself quickly enough to accept that I could no longer live in my nation’s capital, although the facts clearly said so. One Sunday morning I was telephoned from Broadcasting House and informed that armed soldiers who appeared drunk had come looking for me to test which was stronger, my pen or their gun.

The offence of my pen was that it had written a novel called A Man of the People, a bitter satire on political corruption in an African country that resembled Nigeria. I wanted the novel to be a denunciation of the kind of independence that people were experiencing in postcolonial Nigeria and many other countries in the 1960s, and I intended it to scare my countrymen into good behaviour with a frightening cautionary tale. The best monster I could come up with was a military coup d’état, which every sane Nigerian at the time knew was rather far-fetched. But life and art had got so entangled that season that the publication of the novel and Nigeria’s first military coup happened within two days of each other.

Critics abroad called me a prophet, but some of my countrymen saw it differently: my novel was proof of my complicity in the first coup.

I was very lucky that Sunday morning. The drunken soldiers, after leaving Broadcasting House, went to a residence I had recently vacated. Meanwhile I was able to take my wife and two small children into hiding, from where I finally sent them to my ancestral home in eastern Nigeria. A week or two later, unknown callers asked for me on the telephone at my hideout. My host denied my presence. It was time then to leave Lagos.

My feeling was one of profound disappointment.

Not because mobs were hunting down and killing in the most savage manner innocent civilians in many parts of northern Nigeria, but because the federal government sat by and let it happen. The final consequence of this failure of the state to fulfill its primary obligation to its citizens was the secession of eastern Nigeria as the Republic of Biafra. The demise of Nigeria at that point was averted only by Britain’s spirited diplomatic and military support of its model colony. It was Britain and the Soviet Union that 2012 Edition | Doing Business in Nigeria

81

together crushed the upstart Biafran state. At the end of the 30-month war, Biafra was a vast shouldering rubble. The cost in human lives was a staggering two million souls, making it one of the bloodiest civil wars in human history.

I found it difficult to forgive Nigeria and my countrymen and women for the political nonchalance and cruelty that unleashed upon us these terrible events, which set us back a whole generation and robbed us of the chance, clearly within our grasp, to become a medium-rank developed nation in the 20th century.

My immediate response was to leave Nigeria at the end of the war, having honorably, I hoped, stayed around long enough to receive whatever retribution might be due to me for renouncing Nigeria for 30 months.

Fortunately the federal government proclaimed a general amnesty, and the only punishment I received was the general financial and emotional indemnity that war losers pay, and some relatively minor personal harassment. I went abroad to New England, to the University of Massachusetts at Amherst, and stayed four years and then another year at the University of Connecticut. It was by far my longest exile from Nigeria and it gave me time to reflect and to heal somewhat. Without setting out consciously to do so, I was redefining my relationship to Nigeria. I realized that I could not reject her, but neither could it be business as usual. What was Nigeria to me?

Our 1960 national anthem, given to us as a parting gift by a British housewife in England, had called Nigeria “our sovereign motherland”. The current anthem, put together by a committee of Nigerian intellectuals and actually worse than the first one, invokes the father image. But it has occurred to me that Nigeria is neither my mother nor my father. Nigeria is a child.

Gifted, enormously talented, prodigiously endowed and incredibly wayward.

Being a Nigerian is abysmally frustrating and unbelievably exciting. I have said somewhere that in my next reincarnation I want to be a Nigerian again; but I have also, in a rather angry book called The Trouble with Nigeria, dismissed Nigerian travel advertisements with the suggestion that only a tourist with a kinky addiction to self-flagellation would pick Nigeria for a holiday. And I mean both.

Nigeria needs help. Nigerians have their work cut out for them – to coax this unruly child along the path of useful creative development. We are the parents of Nigeria, not vice versa. A generation will come, if we 82

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do our work patiently and well – and given luck – a generation that will call Nigeria father or mother. But not yet.

Meanwhile our present work is not entirely without its blessing and reward. This wayward child can show now and again great intimations of affection. I have seen this flow towards me at certain critical moments.

When I was in America after the Biafran war, an army officer who sat on the council of my university in Nigeria as representative of the federal military government pressured the university to call me back home. This officer had fought in the field against my fellow Biafrans during the war and had been seriously wounded. He had every right to be bitter against people like me. I had never met him, but he knew my work and was himself a poet.

More recently, after a motor accident in 2001 that left me with serious injuries, I have witnessed an outflow of affection from Nigerians at every level. I am still dumbfounded by it. The hard words Nigeria and I have said to each other begin to look like words of anxious love, not hate. Nigeria is a country where nobody can wake up in the morning and ask: what can I do now? There is work for all. ● What does it mean today to be Nigerian?

There are many things that bind us together. If a country of this magnitude was able to fight, prosecute and survive a civil war, with 51 years of independence since 1960, then we are here to stay. We have had far more challenges in our history that we do now. When we fought and survived the civil war, we were barely seven years as an independent nation in spite of which people joined as one and embraced this unity which continues. People talk about states in Nigeria instead of ethnic groups. Nigeria is now functioning on the basis of states. People when coming to Nigeria have a tendency to approach situations from the point of view of walking from the solution to the problem instead of the problem to the solution. The recent elections were in many respects the most transparent and credible in our history since independence.

It gave the President of the Federal Republic of Nigeria a powerful mandate which cut across geographical, religious and ethnic lines.

By H.E. Gordon Bristol, Nigerian Ambassador to France

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Practical information for

visitors to Nigeria

Official language: • English. However English is not spoken in some rural areas where indigenous languages such as Yoruba and Igbo are spoken by the majority. These are complemented by over 500 additional indigenous languages.

Nigerian Pidgin English is also a popular lingua-franca in the country.

Climate: • Temperatures are relatively high with a very narrow variation in seasonal and diurnal ranges (22-36°C). There are two basic seasons – wet season which lasts from April to October and the dry season which lasts from November to March. The dry season commences with Harmattan, a dry chilly spell that lasts until February and is associated with lower temperatures. The second half of the dry season, February to March, is the hottest period of the year when temperatures range from 33-38°C. Main ethnic groups: • Nigeria is composed of over 250 ethnic groups. The three largest are the Hausa, Igbo and Yoruba. The other major tribes in the country include Edo, Ijaw, Kanuri, Ibibio, Ebira Nupe and Tiv. Also there are minority groups of British, American, East Indian, Chinese, white Zimbabwean, Japanese, Greek, Syrian and Lebanese immigrants.

Religion: • Nigeria is a multi-religious country. Fifty percent of the population practice Islam while the rest adhere to Christianity. The other minority religions in the country include Hinduism, Judaism, the Baha’i Faith, and Chrislam, a syncretic faith that contains elements of Christianity and Islam.

Currency: • Nigerian Naira (NGN) is represented by the

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symbol . The Naira is divided into 100 kobo.

Currency notes are issued in denominations of N5, N10, N20, N50 and N100. Coins are issued in 10K, 25K, and N 1 but use of kobo coins is extremely rare. Except for hotel bills, foreigners can do their shopping and other businesses in Naira.

Exchange: • Bureaux de change and banks at international airports can convert foreign currency. Major banks with international branches operate electronic money transfer services. The best exchange rates are offered by street dealers but for security reasons use a bureau de change.

What is the capital of Nigeria?

• Abuja. Built in the 1980s, it became the capital on December 12, 1991, replacing Lagos. The city is home to major attractions in the country such as the Nigerian National Mosque and the Nigerian National Christian Center.

What is the largest city?

• Lagos. Covering some 386 square miles, Lagos is the third-most populous city in Africa with an estimated population of 17 million, and the second-fastest growing city in Africa. It is the economic and financial capital of the country.

How big is Nigeria?

• Nigeria is 356,667 square miles and has an estimated population of 167 million, making it the seventh-most populous country in the world.

What are the administrative divisions?

• Nigeria comprises 36 states and one Federal Capital Territory. The states are further divided into 774 Local Government Areas (LGAs).

Who are the political leaders?

• The country runs a democracy styled after the American system, with a President, VicePresident, Senate, House of Representatives, State Governors, State Houses of Assembly, Federal Ministers and State Commissioners.

The current president is Goodluck Jonathan, who elected in April 2011. The Vice President is Namadi Sambo.

Legal System: • Based on English common law. Islamic Shariah law is used in 12 northern states.

Transportation: International airports

• Abuja (ABV) Known as Nnamdi Azikiwe International, located 22miles (35km), about 40 minutes from Abuja, the capital city.

• Lagos (LOS) Known as Murtala Muhammed, located 13 miles (22km), about 40 minutes north of Lagos. Taxis are available but an airport pick up service is advised. Free coach service every 10 minutes.

• Kano (KAN) Kano international airport is 5 miles (8km), about 25 minutes north of Kano. Buses leave every 10 minutes. Taxis are available.

Trains

• There are trains in Nigeria but traveling by train is not as comfortable as traveling by bus.

Buses

• Traveling by bus is a safe and comfortable way to travel in Nigeria, all major cities are connected.

Taxis

• The average taxi ride from the airports is N4000 and within the cities N2000.

Other

• In Lagos the preferred mode of transport among locals is the motor-bike or Okada bike transport (between N50 and N500 depending on the distance).

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Visas: • All foreign nationalities need a visa including evidence of sufficient funds for the duration of stay and a current vaccination certificates.

This must be done prior to arrival. Citizens of ECOWAS states are allowed to enter Nigeria without a visa, subject to their stay not exceeding three months.

• All visitors to Nigeria must carry a valid national passport or other internationally recognized travel documents endorsed for travel to Nigeria.

Health regulations: • Yellow fever vaccinations are required for arrivals from infected areas. Children under the age of one year are exempted. No certificate of AIDS-free tests is required.

Visitors from Europe and North America should take precautionary steps against malaria which is common in the country.

Customs: • Visitors to Nigeria are allowed four liters of spirit and 200 cigarettes duty free. Personal effects such as cameras, watches, pen lighters, and cosmetics are allowed duty free within reasonable quantity. Other goods, such as video equipment, are dutiable and visitors are expected to pay the duties on the spot.

Communications: • Internet country code: .ng • Telephone country code: 234 Time zone: • GMT + 1 hour Shopping • Hours are Monday to Friday, 8 am to 5 pm, Saturday, 8 am to 4:30. Local markets are good places to shop, especially for local goods such as adire (indigo-dyed cloth), batiks, pottery, leatherwork, cotton goods and carvings. Other goods include herbs, beadwork, baskets and ceremonial masks.

doing business in

Nigeria

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